Q2 2024 Vital Farms Inc Earnings Call

Thank you for standing by. My name is Kathleen and I will be your conference operator today.

Operator: Conference operator today.

Operator: At this time, I would like to welcome everyone to the Vital Farms Incorporated second quarter, 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: At this time, I would like to welcome everyone to the Vital Farms Incorporated 2nd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. Thank you.

Speaker Change: after the speakers or morks there will be a question and answer session

Operator: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

Russell Diez Canseco: Yeah, it's a fair question, and I think historically, we've seen

If you would like to withdraw your question, press the star 1 again.

Operator: If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. Thank you. Now, I would like to turn the call over to Anthony Bucalo, Vice President of Investor Relations. Please go ahead.

Anthony Bucalo: And now I would like to turn the call over to Anthony Bucalo, Vice President of Investor Relations. Please go ahead.

Anthony Bucalo: Thank you. And now I would like to turn the call over to Anthony Bucalo, Vice President of Investor Relations. Please go ahead.

Anthony Bucalo: Good morning and welcome to Vital Farms' second quarter 2024 earnings conference call on webcast. I am Tony Bucalo, BP's Investor Relations, and I am joined in the call today by Russell Diez-Konseko, President and Chief Executive Officer, and Thilo Wrede, Chief Financial Officer. By now, everyone should have access to the company's second quarter 2024 earnings press release issued this morning. This is available on the Investor Relations section of Vital Farms' website at investors.vitalfarms.com. Throughout this call, management may make forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and beliefs, and do involve risks and uncertainties that could cause actual results to differ materially from those described in the list for looking statements.

Anthony Bucalo: Good morning, and welcome to Vital Farms' second quarter 2024 earnings conference call on the web. I am Tony Bucalo, VP of Investor Relations, and I am joined on the call today by Russell Diaz-Canseco, President and Chief Executive Officer, and Thilo Wrede, Chief Financial Officer. By now, everyone should have access to the company's second quarter 2024 earnings press release issued this morning. This is available on the investor relations section of Vital Farms' website at investors.vitalfarms.com.

Tony Bucalo: Good morning and welcome to Vital Farm's second quarter 2024 earnings conference call and webcast. I am Tony Bucalo, VP of Investor Relations, and I am joined on the call today by Russell Diez-Conseco, President and Chief Executive Officer, and Thilo Wrede, Chief Financial Officer.

Speaker Change: by now everyone should have access to the company's second quarter two thousand and twenty four earnings press release issued this morning this is available on the investor relation section of vital farms' website had investors dot vital farms com

Anthony Bucalo: Throughout this call, management may make forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations and beliefs and do involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release, the company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2024, filed with the SEC today, as well as our other filings with the SEC, for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Speaker Change: throughout this call management may make forward-looking statements within the meaning of ederal securities laws these statements are based on management's current expectations and beliefs and to involve risks and uncertainties that could cause actual results to differ materially from those described in loose forward-looking statements

Anthony Bucalo: Please refer to today's press release, the company's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2024, filed with the SEC today, as well as other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed for implied in any forward-looking statements made today.

Tony Bucalo: please refer to today's press release the company's quarterly report on form ten q for the fiscal quarter ended june thirtieth two thousand andtwenty four

Tony Bucalo: files with the SEC today, as well as our other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Anthony Bucalo: Please note that on today's call, management will refer to adjusted EBITDA and an adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to the most comparable measures prepared in accordance with GAAP.

Anthony Bucalo: Please note that on today's call, Matt Smith will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to the most comparable measures prepared in accordance with GAAP. With that, I will turn the call over to Russell Diez Canseco, President and Chief Executive Officer of Vital Farms.

Matt Smith: Please note that on today's call, Matt Smith will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures.

Tony Bucalo: While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Speaker Change: Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their most comparable measures prepared in accordance with GAAP. With that, I will turn the call over to Russell Diez Canseco, President and Chief Executive Officer of Vital Farms.

Russell Diez Canseco: With that, I will turn the call over to Russell Diez Canseco, President and Chief Executive Officer of Vital Farms.

Russell Diez: With that, I will turn the call over to Russell Diaz Canseco, President and Chief Executive Officer of Vital Plums. Good morning, and thank you for your time today. I'm pleased to announce that our momentum from the first quarter carried into the second. We delivered another great set of top-to-bottom results. Our performance was driven by growing demand for our premium products and excellent execution from the great people working across Vital Plums. I'd like to thank all of our crew members throughout the organization for these really terrific results. Today, I'll start with our key financial headlines and then shift to new developments.

Russell Diez Canseco: Good morning, and thank you for your time today. I'm pleased to announce that our momentum from the first quarter carried into the second, and we delivered another great set of top-to-bottom results. Our performance was driven by growing demand for our premium products and excellent execution from the great people working across Vital Farms. I'd like to thank all of our crew members throughout the organization for these really terrific results. Today, I'll start with our key financial headlines and then shift to new developments. I'll then hand it over to Thilo, who will provide more detail on our second quarter financials and updated guidance for fiscal year 2024.

Speaker Change: Good morning and thank you for your time today. I'm pleased to announce that our momentum from the first quarter carried into the second.

Russell Diez Canseco: We delivered another great set of top-to-bottom results. We continue to expand our farm network, and we're adding a new egg washing and processing facility in Seymour, Indiana. Let's get right to the key financial headlines.

Speaker Change: We delivered another great set of top-to-bottom results.

Speaker Change: our performance is driven by growing demand for our premium products and excellent execution from the great people working across title formsms

Speaker Change: I'd like to thank all of our crew members throughout the organization for these really terrific results.

Speaker Change: Today, I'll start with our key financial headlines and then shift to new developments. I'll then hand it over to Thilo, and he'll provide more detail on our second quarter financials and updated guidance for fiscal year 2024.

Russell Diez: I'll then hand it over to Tilo, and he will provide more detail on our second quarter financials and updated guidance for fiscal year 2024. With our strong start to the year, I'm happy to report that we're in a great position to both raise our guidance and accelerate investment in the long-term success of our business. We continue to expand our farm network, and we're adding a new eggwashing and processing facility in Seymour, Indiana. Additionally, we will be stepping up brand marketing investment in the back half of the year, driving our message to consumers as we push to reach 30 million households by 2027.

Russell Diez Canseco: With our strong start to the year, I'm happy to report that we're in a great position to both raise our guidance and accelerate investment in the long-term success of our business. We continue to expand our farm network, and we're adding a new egg washing and processing facility in Seymour, Indiana. Additionally, we will be stepping up brand marketing investment in the back half of the year, driving our message to consumers as we push to reach 30 million households by 2020. Now, let's get right to the key financial headlines.

Speaker Change: With our strong start to the year, I'm happy to report that we're in a great position to both raise our guidance and accelerate investment in the long-term success of our business.

Speaker Change: we continue to expand our farm network and we're adding a new egg-washing and processing facility and seemore indiana

Speaker Change: Additionally, we will be stepping up brand marketing investment in the back half of the year, driving our message to consumers as we push to reach 30 million households by 2027.

Russell Diez: Let's get right to the key financial headlines. We had another excellent top line performance with record second quarter net revenue of $147.4 million, up 38.5%. You might remember that we guided for 300 basis points of tailwind for sales in the quarter. This was due to our laughing; some negative product ordering dislocations related to aging influenza last year. We did enjoy some benefit from this comparison. However, we still performed well above our expectations. In the first half of 2024, our sales group 31% on top of a first half 2023 comparison of 41%. We delivered another strong gross margin performance this quarter.

Russell Diez Canseco: We had another excellent top line performance with record second quarter net revenue of $147.4 million, up 38.5%. You might remember that we got it for 300 basis points of tailwind for sales in the quarter. This was due to our lapping some negative product ordering dislocations related to avian influenza last year.

Russell Diez Canseco: We had another excellent top line performance with record second quarter net revenue of $147.4 million, up 38.5%. In addition to our strong gross margin performance, we delivered $23.3 million of adjusted EBITDA, up 105% versus the second quarter of 2023. Year to date, we've delivered $52.3 million of adjusted EBITDA, up 108% from the first half of last year. I'm also thankful for all of our crew members who helped make that

Speaker Change: Let's get right to the key financial headlines.

Speaker Change: We had another excellent top-line performance, with record second-quarter net revenue of $147.4 million, up 38.5%.

Speaker Change: you might remember that we guide it for three hundred basis points of tailwind for sales in the quarter this was due to our laughing some negative product ordering dislocations related to even influential last year

Russell Diez Canseco: We did enjoy some benefit from this comparison. However, we still performed well above our expectations. In the first half of 2024, our sales grew 31% on top of a first half 2023 comparison of 41%. We delivered another strong gross margin performance this quarter. Boosted by sales growth, productivity gains, selective pricing, efficient supply chain execution, and a more benign commodity cost environment, Gross Margin improved 362 basis points to 39.1% in the quarter and improved 381 basis points to 39.5% for the first half.

Speaker Change: We did enjoy some benefit from this comparison. However, we still performed well above our expectations.

Speaker Change: in the first half of two thousand and twentyfour our sales grew thirty-one percent on top of a first half two thousand and twenty three comparison of forty one percent

Russell Diez: Who stood by sales growth, productivity gains, collective pricing, efficient supply chain execution, and a more benign commodity cost environment. Gross margin improved 362 basis points to 39.1% in the quarter and improved 381 basis points to 39.5% for the first half. In addition to our strong gross margin performance, we delivered $23.3 million of adjusted EBITDA of 105% versus the second quarter of 2023. Year to date, we delivered $52.3 million in adjusted EBITDA of 108% from the first half of last year. Our adjusted EBITDA margin for the quarter improved to 15.8% of 512 basis points from last year.

Speaker Change: We delivered another strong gross margin performance this quarter.

Speaker Change: Boosted by Sales Growth, Productivity Gains, Selective Pricing.

Speaker Change: Efficient Supply Chain Execution, and a more benign Commodity Cost Environment.

Speaker Change: Gross margin improved 362 basis points to 39.1% in the quarter and improved 381 basis points to 39.5% for the first half.

Russell Diez Canseco: In addition to our strong gross margin performance, we delivered $23.3 million of adjusted EBITDA, up 105% versus the second quarter of 2023. Year to date, we've delivered $52.3 million in adjusted EBITDA, up 108% from the first half of last year. Our adjusted EBITDA margin for the quarter improved to 15.8%, up 512 basis points from last year. Our half-year adjusted EBITDA margin improved 656 basis points to 17.7%

Speaker Change: In addition to our strong gross margin performance, we delivered $23.3 million of adjusted EBITDA, up 105% versus the second quarter of 2023.

Speaker Change: Year-to-date, we've delivered $52.3 million in adjusted EBITDA, up 108% from the first half of last year.

Speaker Change: our adjusted ebitda margin for the quarter improved to fifteen point eight percent of five hundred and twelve basis points from last year

Russell Diez: Our half year adjusted EBITDA margin improved 656 basis points to 17.7%. Strong consumer demand helped drive our top and bottom line success this quarter. We believe we are in a virtuous cycle of higher consumer demand driving expanded distribution, and expanded distribution driving further demand. We continue to build our shelf presence and stores where we're already prominent, accelerating our sales performance. Year on year, our total distribution points have increased by 19% to 453 in the natural channel and by 17% to 215 in the food channel. We still have much more room to grow by adding more items to existing shelves at locations where we already have a strong presence.

Speaker Change: Our half-year adjusted EBITDA margin improved 656 basis points to 17.7%.

Russell Diez Canseco: Strong consumer demand helps drive our top and bottom line success. We believe we are in a virtuous cycle of higher consumer demand driving expanded distribution, and expanded distribution driving further demand. We continue to build our shelf presence in stores where we're already prominent, accelerating our sales. Year-on-year, our total distribution points have increased by 19% to 453 in the natural channel and by 17% to 215 in the food channel.

Speaker Change: Strong consumer demand helped drive our top and bottom line success this quarter.

Speaker Change: we believe we are inan virtuous cycle of higher consumer demand driving expanded distribution and expanded distribution driving further demand

Speaker Change: we continue to build our shelf presence in stores where we're already prominent accelerating our sales performance

Speaker Change: Year-on-year our total distribution points have increased by 19% to 453 in the natural channel and by 17% to 215 in the food channel.

Russell Diez Canseco: We still have much more room to grow by adding more items to existing shelves at locations where we already have a strong presence. Yes, I'm pleased by our strong sales distribution and gross margin performance this quarter. I'm also thankful for all of our crew members who helped make that happen.

Speaker Change: we still have much more rim to grow by adding more items to existing shelves at locations where we already have a strong presence

Russell Diez: Yes, I'm pleased by our strong sale distribution and gross margin performance this quarter. I'm also thankful for all of our crew members who helped make that happen. We are well positioned to meet future consumer demand, and we continue to invest to make that happen. Our brand is at the core of who we are, and our brand marketing remains a powerful lever of our success. We're always looking for ways to drive brand awareness in meaningful and culturally relevant moments. This summer, with women's sports viewership on the rise, we have a new campaign that celebrates female farmers and athletes alike.

Speaker Change: yes i'm pleased by our strong sale distribution and gross margin performance this quarter i'm also thankful for all of our creue members who help make that happen we are well positioned to meet future consumer demand and we continue to invest to make that happen

Russell Diez Canseco: We are well-positioned to meet future consumer demand, and we continue to invest to make that happen. Our brand is at the core of who we are, and our brand marketing remains a powerful lever of our success. We're always looking for ways to drive brand awareness in meaningful and culturally relevant moments. This summer, with women's sports viewership on the rise, we have a new campaign that celebrates female farmers and athlete delight. We expect this campaign will deliver more than 350 million advertising impressions across sports networks, during games, tournaments, and Mets games. This includes the Women's Wimbledon tournament, which just concluded in July, and the National Women's Soccer League and Ladies Professional Golf Association through the fall.

Russell Diez Canseco: We are well positioned to meet future consumer demand, and we continue to invest to make that happen. Our brand is at the core of who we are, and our brand marketing remains a powerful lever of our success. We're always looking for ways to drive brand awareness in meaningful and culturally relevant moments. We also have a few spots running during the Olympics coverage on the USA Network.

Speaker Change: Our brand is at the core of who we are, and our brand marketing remains a powerful lever of our success.

Speaker Change: We're always looking for ways to drive brand awareness in meaningful and culturally relevant moments.

Speaker Change: this summer with women' sports stewership on the rise we have a new campaign that celebrates female farmers and athlete to like

Russell Diez: We expect this campaign will deliver more than 350 million advertising impressions across sports networks during games, tournaments, and matches. This includes the Women's Wimbledon Entertainment, just concluded in July, and the National Women's Soccer League and Ladies Professional Golf Association through the fall. We also have a few spots running during the Olympics coverage on the USA Network. Joining the women's sports conversation continues to deliver outsize results, resonating with our highly engaged and growing audience. We expect to generate 650 million earned impressions through press coverage that highlights our unique campaign.

Speaker Change: we expect this campaign will deliver more than three hundred fifty million advertising impressions across sports networks during gains tournaments and matches

Speaker Change: This includes the Women's Wimbledon Tournament, just concluded in July , and the National Women's Soccer League and Ladies' Professional Golf Association through the fall.

Russell Diez Canseco: We also have a few spots running during the Olympics coverage on the USA Network. Joining the Women's Sports Conversation continues to deliver outsized results, responding with our highly engaged and growing audience. We expect to generate 650 million earned impressions through press coverage that highlights our unique campaign. Furthermore, we have good news about our supply chain this quarter. First, we're happy to announce that we now work with more than 350 family farms within our network, up from more than 300 at the beginning of the year.

Speaker Change: We also have a few spots running during the Olympics coverage on the USA Network.

Speaker Change: joining the women's sports conversation continues to deliver outsized results resonating with our highly engaged and growing audience

Speaker Change: We expect to generate 650 million earned impressions through press coverage that highlights our unique campaign.

Russell Diez: Furthermore, we have good news about our supply chain this quarter. First, we're happy to announce that we're now working with more than 350 family farms within our network, up from more than 300 at the beginning of the year. Our family farmers are central to what we do in our business. We believe our ability to attract and support new farmers is a critical strength of our company. We continue to add farms to support our growth as we push toward a billion dollars in revenue. Next, in June, we made the formal announcement of the location for our new eggwashing and packaging facility.

Speaker Change: Furthermore, we have good news about our supply chain this quarter. First, we're happy to announce that we're now working with more than 350 family farms within our network, up from more than 300 at the beginning of the year.

Russell Diez Canseco: Our family farmers are central to what we do in our business. We believe our ability to attract and support new farmers is a critical strength of our company. We continue to add farms to support our growth as we push toward a billion dollars in revenue. Next, in June, we made the formal announcement of the location for our new egg washing and packaging facility. This 72-acre site will be in Seymour, Indiana, and when finished, will help launch us into our next stage of growth.

Russell Diez Canseco: We believe our ability to attract and support new farmers is a critical strength of ours. This 72-acre site will be in Seymour, Indiana, and when finished, will help launch us into our next stage of growth and help generate more than $350 million in additional revenue. Since 2022, the price mix of our portfolio has evolved, and we've become significantly more efficient. This year, we purchased $3 million in farmland in Indiana within a short distance of our planned facility in Seymour.

Speaker Change: Our family farmers are central to what we do in our business.

Speaker Change: We believe our ability to attract and support new farmers is a critical strength of our company.

Speaker Change: We continue to add farms to support our growth as we push toward a billion dollars in revenue.

Speaker Change: next in june we made the formal announcement of location for our new eggwashing and packaging facility

Russell Diez: This 72-acre site will be in Seymour, Indiana, and when finished, we'll help launch us into our next stage of growth. We plan to break ground in 2025 and expect to begin operations there in 2027. Our world-class egg-central station facility in Springfield, Missouri, is still finding ways to improve its already impressive performance. As I remarked last quarter, we're just flat out better at getting our high-quality eggs packed and shipped. With Seymour, what's most exciting for us is that the construction and operational plans for the new facility will be built upon our key learnings and successes from Springfield.

Speaker Change: This 72-acre site will be in Seymour, Indiana, and when finished, will help launch us into our next stage of growth.

Russell Diez Canseco: We plan to break ground in 2025 and expect to begin operations there in 2020. Meanwhile, our world-class AgCentral station facility in Springfield, Missouri, is still finding ways to improve its already impressive performance. As I remarked last quarter, we're just flat out better at getting our high-quality eggs packed and shipped. With Seymour, what's most exciting for us is that the construction and operational plans for the new facility will be built upon our key learnings and successes from Springfield.

Speaker Change: we plan to breakground in two thousand and twenty-five and expect to begin operations there in two thousand and twenty-seven

Speaker Change: our world-class ecentral station facility in springfield missouri is still finding ways to improve its already impressive performance

Speaker Change: As I remarked last quarter, we're just flat out better at getting our high quality eggs packed and shipped.

Speaker Change: With Seymour, what's most exciting for us is that the construction and operational plans for the new facility will be built upon our key learnings and successes from Springfield. This includes everything from people development to production.

Russell Diez: This includes everything from people development to production. Additionally, we expect to have ample room to expand past our 2027 revenue goals. We expect Seymour will create at least 150 jobs for the local community in its first phase. When finished, over the long term, we expect Seymour to support approximately 165 new family farmers and to help generate more than $350 million in additional revenues. This facility will complement Springfield, which we now estimate has $800 million in revenue capacity.

Russell Diez Canseco: This includes everything from personnel development to production. Additionally, we expect to have ample room to expand past our 2027 revenue goal. We expect Seymour to create at least 150 jobs for the local community in its first phase.

Speaker Change: Additionally, we expect to have ample room to expand past our 2027 revenue goals.

Speaker Change: We expect Seymour will create at least 150 jobs for the local community in its first phase.

Russell Diez Canseco: When finished, over the long term, we expect Seymour to support approximately 165 new families and to help generate more than $350 million in additional revenue. This facility will complement Springfield, which we now estimate has $800 million in revenue capacity. Let me briefly elaborate on this last data.

Speaker Change: When finished, over the long term, we expect Seymour to support approximately 165 new family farmers.

Speaker Change: and to help generate more than $350 million in additional revenues.

Speaker Change: This facility will complement Springfield, which we now estimate has $800 million in revenue capacity.

Russell Diez: Let me briefly elaborate on this last data coin. Since our ECS Springfield expansion in 2022, we've discussed a revenue capacity of $700 million for this facility. However, we want to give you an up-to-date estimate. Since 2022, the price mix of our portfolio has evolved, and we've become significantly more efficient. We estimate that this combination has given us at least $100 million in estimated additional revenue capacity since our last estimate in 2022.

Russell Diez Canseco: Since our ECS Springfield expansion in 2022, we've discussed a revenue capacity of $700 million for this facility. However, we want to give you an up-to-date. Since 2022, the price mix of our portfolio has evolved, and we've become significantly more efficient. We estimate that this combination has given us at least $100 million in estimated additional revenue capacity since our last estimate in 2020. Finally, we're in the planning stages of building a handful of farms ourselves.

Speaker Change: let me briefly elaborate on this last data pointin

Speaker Change: Since our ECS Springfield expansion in 2022, we've discussed a revenue capacity of $700 million for this facility.

Speaker Change: However, we want to give you an up-to-date estimate.

Speaker Change: since two thousand and twenty-two the price mix of our portfolio has involved and we've become significantly more efficient

Speaker Change: We estimate that this combination has given us at least $100 million in estimated additional revenue capacity since our last estimate in 2022.

Russell Diez: Finally, we're in the planning stages of building a handful of farms ourselves. This year, we've purchased $3 million in farmland in Indiana within a short distance of our planned facility in Seymour. This land is where we plan to build these new farms. When up and running, these starter farms will serve two purposes. First, building and running a small number of our farms ourselves will allow us to test new ideas and processes without imposing on our existing family farm systems. We can then share best practices and learnings across our family farm network. This is an operational, creating a turnkey solution for buyers.

Speaker Change: Finally, we're in the planning stages of building a handful of farms ourselves. This year, we've purchased $3 million in farmland in Indiana, within a short distance of our planned facility in Seymour. This land is where we plan to build these new farms.

Russell Diez Canseco: This year we purchased $3 million in farmland in Indiana, within a short distance of our planned facility in Seymour. This land is where we plan to build these new farms. When up and running, these starter farms will serve two purposes. First, building and running a small number of our farms ourselves will allow us to test new ideas and processes without imposing on our existing family farms.

Speaker Change: we're up in the running these starter farms will serve two purposes

Russell Diez Canseco: We can then share best practices and learnings across our family farm network. Additionally, over time, we plan to make these farms available for sale to family farmers looking to join our network. We anticipate these farms will be fully operational, creating a turnkey solution for buyers. These farms will provide the potential for immediate cash flow, as well as mitigate much of the initial startup risk for new farmers and their families. Note that anticipated project costs have been included in our capital expenditure guide.

Speaker Change: first building and running a small number of our farms ourselves will allow us to test new ideas and processes without imposing on our existing family formm system

Russell Diez Canseco: We can then share best practices and learnings across our family farm network. These farms will provide the potential for immediate cash flow, as well as mitigate much of the initial startup risk for new farmers and their families. Our choice to import from Ireland is consistent with our commitment to animal welfare and family farms. Here in the US, we reinforce the brand with attractive new packaging, giving the product a premium brand halo that stands out to consumers on the shelf. I'd like to wrap up with just a few comments.

Speaker Change: we can then share best practices and learnings across our family farm network

Speaker Change: Second, over time, we plan to make these farms available for sale to family farmers looking to join our network.

Speaker Change: We anticipate these farms will be fully operational, creating a turnkey solution for buyers. These farms will provide the potential for immediate cash flow, as well as mitigation of much of the initial startup risk for new farmers and their families.

Russell Diez: These farms will provide the potential for immediate cash flow, as well as mitigation of much of the initial startup risk for new farmers and their families. Note that anticipated project costs have been included in our capital expenditure guidance.

Speaker Change: note that anticipated project costs have been included in our capital expenditure guidance

Russell Diez: Before I hand it over to Thilo, I want to share a quick update on butter. As you recall, we relaunched our butter line in April. This was after an extensive global search for a supply source, which we believe best represented our Vital Farms philosophy and mission. We chose a supplier in Ireland as our primary source, and we are now working closely with family farms there to deliver a delicious, creamy product that's 90% grass fed. Our choice to import from Ireland is consistent with our commitment to animal welfare and family farm support. Here in the US, we reinforce the brand with attractive new packaging, giving the product a premium brand halo that stands out to consumers on the show.

Russell Diez Canseco: Before I hand it over to Thilo, I want to share a quick update on Butter. As you recall, we relaunched our butter line in April. This was after an extensive global search for a supply source that we believe best represented our Vital Farms philosophy and mission. We chose a supplier in Ireland as our primary source, and we are now working closely with Family Farms there to deliver a delicious, creamy product that's 90% grass fed. Our choice to import from Ireland is consistent with our commitment to animal welfare and family farms.

Speaker Change: Before I hand it over to Thilo, I want to share a quick update on Butter.

Speaker Change: As you recall, we relaunched our Butter Line in April . This was after an extensive global search for a supply source which we believed best represented our Vital Farms philosophy and mission.

Speaker Change: We chose a supplier in Ireland as our primary source, and we are now working closely with Family Farms there to deliver a delicious, creamy product that's 90% grass-fed.

Speaker Change: our choice to import from ireland is consistent with our commitment to annual welfare and family farm support

Russell Diez Canseco: Here in the US, we reinforce the brand with attractive new packaging, giving the product a premium brand halo that stands out to consumers on the shelf. Although it's still early days, I'm happy to report that we're seeing significant progress since the relaunch. Our overall butter business is down so far this year as we're lapping the discontinuation of our tub butter skew late last year. However, we expect a return to growth in the second half of. Our stick butter business is growing, and our velocities have picked up materially where we are present.

Speaker Change: Here in the U.S. we reinforce the brand with attractive new packaging, giving the product a premium brand halo that stands out to consumers on the shelf.

Russell Diez: Although it's still early days, I'm happy to report that we're seeing significant progress since the relaunch. Our overall butter businesses down so far this year as we're lapping the discontinuation of our tub butter stew late last year. However, we expect a return to growth in the second half of the year. Our stick butter business is growing, and our velocities have picked up materially where we are present. The future looks good for butter, and I'm happy with what we've accomplished in such a short period. My advice is to go out and find some for your fridge.

Speaker Change: Although it's still early days, I'm happy to report that we're seeing significant progress since the relaunch.

Speaker Change: Our overall butter business is down so far this year as we're lapping the discontinuation of our tub butter skew late last year. However, we expect to return to growth in the second half of the year.

Speaker Change: Our stick butter business is growing, and our velocities have picked up materially where we are present. The future looks good for butter, and I'm happy with what we've accomplished in such a short period.

Russell Diez Canseco: The future looks good for butter, and I'm happy with what we've accomplished in such a short period. My advice is to go out and find some for your fridge. We keep it in our house, and it's terrific.

Russell Diez: We keep it in our house, and it's terrific.

Speaker Change: my vicees to go out and find some for your fridge we keep it in our house and it's terrific

Russell Diez: I'd like to wrap up with just a few comments. We got off to a great start in the first quarter, and that momentum carried into the second. Our business is in great shape, and I'm excited for what we've accomplished so far this year. It's been exciting to watch our growth while serving our stakeholders and delivering on our financial promises. We have big plans for our future, and we know our growth will require investment and long-term thinking. We will continue doing the hard work of recruiting new family farms and adding new capacity to achieve our ambitious financial goals.

Russell Diez Canseco: I'd like to wrap up with just a few comments. We got off to a great start in the first quarter, and that momentum carried into the second. Our business is in great shape, and I'm excited about what we've accomplished so far this year. It's been exciting to watch our growth while serving our stakeholders and delivering on our financial promise. We have big plans for our future, and we know our growth will require investment and long-term commitment. We will continue doing the hard work of recruiting new family farms and adding new capacity to achieve our ambitious financial goals.

Speaker Change: i'd like to wrap up with just a few comments

Speaker Change: we got off to a great start in the first quarter and that momentum carried into the second

Speaker Change: Our business is in great shape, and I'm excited for what we've accomplished so far this year.

Speaker Change: It's been exciting to watch our growth while serving our stakeholders and delivering on our financial promises.

Speaker Change: we have big plans for our future and we know our growth will require investment and long-term thinking

Speaker Change: We will continue doing the hard work of recruiting new family farms and adding new capacity to achieve our ambitious financial goals.

Russell Diez: This expansion of capacity runs parallel with the investments we're already making in our people, brand, and infrastructure. As a result, we're confident that we are well positioned to meet our updated guidance for the year, and our long term financial targets beyond that.

Russell Diez Canseco: This expansion of capacity runs parallel with the investments we're already making in our people, brand, and infrastructure. As a result, we're confident that we are well-positioned to meet our updated guidance for the year and our long-term financial targets beyond. And with that, we'll now go to our CFO, Thilo Wrede, for further discussion.

Speaker Change: This expansion of capacity runs parallel with the investments we're already making in our people, brand, and infrastructure.

Speaker Change: as a result we're confident that we are well positioned to meet our updated guidance for the year and our long-term financial targets beyond them

Thilo Wrede: And with that, we'll now go to our CFO, Kylo Vereda, for further discussion. Thank you, Russell. Hello, everyone, and thank you for joining us today.

orata: and with that we'll now go to our cfo orata for further discretion

Thilo Wrede: Thank you, Russell. Hello, everyone, and thank you for joining us today. I will now review our financial results for the first quarter and June 30th, 2024, and then provide details on our updated guidance for fiscal year 2024. We followed our record first quarter results with another great performance in the second quarter. Our net revenue rose to $147.4 million, up 38.5% versus last year. We posted 35.8% volume growth and a modest price mix benefit. Consistent with our performance from the first quarter, volume growth was driven by strong consumer demand and expansion at both new and existing retailers.

Thilo Wrede: I will now review our financial results for the first quarter in the June 30th, 2024, and then provide details on our updated guidance for 50 years, 2024. We followed our record first quarter results with another great performance in the second quarter. Our net revenue rose to $147.4 million, but 38.5% versus not here. We posted 35.8% volume growth, and modest price makes better. Smith. Consistent with our performance from the first quarter, volume growth was driven by strong consumer demand and expansion at both new and existing retailers. This volume performance was in line with our mostly volume-driven growth plans for this year.

orata: Thank you, Russell. Hello, everyone, and thank you for joining us today. I will now review our financial results for the first quarter and the June 30, 2024, and then provide details on our updated guidance for fiscal year 2024.

Thilo Wrede: This volume performance was in line with our mostly volume-driven growth plans for this year. Gross profit for the second quarter of 2024 rose to $57.7 million, or 39.1% of net revenue, compared to $37.8 million, or 35.5% of net revenue, in the second quarter of 2023. Gross profit was boosted by revenue growth, scale benefits, and operational efficiency. These factors, along with price mix benefits and lower conventional commodity and diesel costs, also contributed to higher margins.

Speaker Change: We followed our record first quarter results with another great performance in the second quarter. Our net revenue rose to $147.4 million, up 38.5% versus last year. We posted 35.8% volume growth and modest price mix benefits.

Thilo Wrede: This was partially offset by an increase in the promotional rate and an increase in labor and overhead costs to keep up with our growth. SG&A expenses for the second quarter of 2024 were $33.3 million, or 22.6% of net revenue, compared to $23.9 million, or 22.5% of net revenue, in the second quarter of last year. The increase in SG&A this quarter was driven primarily by higher professional service expenses, employee-related costs, including stock-based compensation, an overall increase in employee headcount, brokerage and marketing expenses, and technology and software-related These costs all reflected the expansion of the business.

orata: Consistent with our performance from the first quarter, volume growth was driven by strong consumer demand and expansion at both new and existing retailers.

orata: This volume performance was in line with our mostly volume-driven growth plans for this year.

orata: Gross profit for the second quarter of 2024 rose to $57.7 million, or 39.1% of net revenue, compared to $37.8 million, or 35.5% of net revenue, in the second quarter of 2023.

Thilo Wrede: Gross profit was boosted by revenue growth, scale benefits, and operational efficiency. These factors, along with price-mix benefits and lower conventional commodity and diesel costs, also contributed to higher margins. This was partially offset by an increase in the promotional rate and an increase in labor and overhead costs to keep up with our growth. SGNA expenses for the second quarter of 2024 were 33.3 million dollars, or 22.6% of net revenue, compared to 23.9 million dollars, or 22.5% of net revenue, in the second quarter of last year. The increase in SG&A this quarter was driven primarily by higher professional service expenses, employee-related costs, including stock-based compensation, and overall increase in employee headcount, brokerage and marketing expenses, and technology and software-related expenses.

Russell Diez Canseco: Gross profit was boosted by revenue growth, scale benefits, and operational efficiency. SG&A expenses for the second quarter of 2024 were $33.3 million, or 22.6% of net revenue, compared to $23.9 million, or 22.5% of net revenue in the second quarter of last year. Shipping and distribution costs rose in absolute terms, but declined as a percentage of sales.

orata: Gross profit was boosted by revenue growth, scale benefits, and operational efficiencies.

orata: These factors, along with price mix benefits and lower conventional commodity and diesel costs, also contributed to higher margins.

orata: This was partially offset by an increase in the promotional rate and an increase in labor and overhead costs to keep up with our growth.

orata: SG&A expenses for the second quarter of 2024 were $33.3 million, or 22.6% of net revenue, compared to $23.9 million, or 22.5% of net revenue in the second quarter of last year.

orata: The increase in SG&A this quarter was driven primarily by higher professional services expenses, employee-related costs, including stock-based compensation, an overall increase in employee headcount, brokerage and marketing expenses, and technology and software-related expenses.

Thilo Wrede: These costs all reflected the expansion of the business. Shipping in distribution costs rose in absolute terms, but declined as a percentage of sales. Shipping in distribution expenses in the second quarter rose to 7.2 million dollars, or 4.9% of net revenue, compared to 5.9 million dollars, or 5.5% of net revenue in the second quarter of 2023. The increase in shipping in distribution expense was driven by higher sales volumes, partially offset by favorable line haul and fuel rate. Net income for the second quarter of 2024 was 16.3 million dollars, or 36 cents per diluted share, compared to 6.7 million dollars, or 15 cents per diluted share, for the second quarter of 2023.

orata: these costs are reflected the expansion of the business

Thilo Wrede: Shipping and distribution costs rose in absolute terms but declined as a percentage of sales. Shipping and distribution expenses in the second quarter rose to $7.2 million, or 4.9% of net revenue, compared to $5.9 million, or 5.5% of net revenue in the second quarter of 2023. The increase in shipping and distribution expenses was driven by higher sales volumes, partially offset by favorable line haul and fuel rates.

orata: Shipping and distribution costs rose in absolute terms but declined as a percentage of sales.

Russell Diez Canseco: Shipping and distribution expenses in the second quarter rose to $7.2 million, or 4.9% of net revenue, compared to $5.9 million, or 5.5% of net revenue, in the second quarter of 2023. Net income for the second quarter of 2024 was $16.3 million, or $0.36 per diluted share, compared to $6.7 million, or $0.15 per diluted share, for the second quarter of 2023. Adjusted EBITDA for the second quarter of 2024 more than doubled to $23.6 million, or 15.8% of net revenue compared to $11.3 million, or 10.7% of net revenue for the second quarter of 2023.

Speaker Change: shipping in distribution expenses in the second quarter growross to seven point two million dollars or four per nine percent of net revenue compared to five point nine million dollars or five point five percent of net revenue in the second quarter of two thousand and twenty-three

orata: The increase in shipping and distribution expense was driven by higher sales volumes partially offset by favorable line haul and fuel rates.

Thilo Wrede: Net income for the second quarter of 2024 was $16.3 million or $0.36 per diluted share compared to $6.7 million or $0.15 per diluted share for the second quarter of 2023. Adjusted EBITDA for the second quarter of 2024 more than doubled to $23.6 million or 15.8% of net revenue compared to $11.3 million or 10.7% of net revenue for the second quarter of 2023. Now, a quick update on our capital structure. Our cash, cash equivalents, and investment securities increased by $35.9 million in the second quarter, and as of June 30, 2024, we had total cash, cash equivalents, and marketable securities of $152.7 million with no debt outstanding.

orata: Net income for the second quarter of 2024 was $16.3 million or $0.36 per diluted share compared to $6.7 million or $0.15 per diluted share for the second quarter of 2023.

Thilo Wrede: The adjusted EBITDA for the second quarter of 2024 more than doubled, to 23.6 million dollars, or 15.8% of net revenue, compared to 11.3 million dollars, or 10.7% of net revenue, for the second quarter of 2023.

orata: Adjusted EBITDA for the second quarter of 2024 more than doubled to $23.6 million, or 15.8% of net revenue, compared to $11.3 million, or 10.7% of net revenue, for the second quarter of 2023.

Thilo Wrede: Now a quick update on our capital structure. Our cash, cash equivalent, and investment securities increased by 35.9 million dollars in the second quarter, and as of June 30, 2024, we are total cash, cash equivalent, and marketable securities of 152.7 million dollars, with no debt outstanding. Now looking ahead, for the full fiscal year 2024, we are now guiding to net revenue of at least 5.9 million dollars, or at least 25% growth, compared to our previous expectation of at least 5.75 million dollars, or at least 22% growth. And adjusted EBITDA of at least 75 million dollars, or at least 55% growth, compared to our previous expectation of at least 70 million dollars, or at least 45%.

Russell Diez Canseco: Now a quick update on our capital structure. Our cash, cash equivalents, and investment securities increased by $35.9 million in the second quarter, and as of June 30, 2024, we had total cash, cash equivalents, and marketable securities of $152.7 million with no debt outstanding.

orata: now a quick update on our capital structure

orata: Our cash, cash equivalents, and investment securities increased by $35.9 million in the second quarter, and as of June 30, 2024, we had total cash, cash equivalents, and marketable securities of $152.7 million, with no debt outstanding.

Russell Diez Canseco: Now looking ahead, for the full fiscal year 2024, we are now guiding to net revenue of at least $590 million, or at least 25% growth, compared to our previous expectation of at least $575 million, or at least 22% growth. And adjusted EBITDA of at least $75 million, or at least 55% growth, compared to our previous expectation of at least $70 million, or at least 45% growth. Our updated 2024 guidance reflects a strong performance in the second quarter and good visibility on demand and commodity prices for the second half of the year.

Thilo Wrede: Now looking ahead, for the full fiscal year 2024, we are now guiding to net revenue of at least $590 million, or at least 25% growth, compared to our previous expectation of at least $575 million, or at least 22% growth, and adjusted EBITDA of at least $75 million, or at least 55% growth, compared to our previous expectation of at least $70 million, or at least 45% growth. Our Catholic's guidance remains unchanged at $35.5 million. Our long-term guidance also remains unchanged.

orata: Now looking ahead, for the full fiscal year 2024, we are now guiding to a net revenue of at least $590 million, or at least 25% growth, compared to our previous expectation of at least $575 million, or at least 22% growth.

orata: and adjusted EBITDA of at least $75 million, or at least 55% growth, compared to our previous expectation of at least $70 million, or at least 45% growth.

Thilo Wrede: and Robert Gross. Our Capix guidance remains unchanged at 35.5 million dollars. Our long-term guidance also remains unchanged.

orata: Our CAPEX guidance remains unchanged at $35.5 million.

Thilo Wrede: We are targeting $1 billion in net revenue by 2027, with a growth margin of at least 35% and an EBITDA margin of 12 to 14%. Our updated 2024 guidance reflects a strong performance in the second quarter and good visibility on demand and commodity prices for the second half of the year. In parallel with our increased investment in our supply chain, we will continue to invest in marketing and expand our retail presence to drive awareness and deepen brand loyalty with our consumers.

Thilo Wrede: We are targeting $1 billion in net revenue by 2027, with a gross margin of at least 35% and an EBITDA margin of 12 to 14%. Our updated 2024 guidance reflects the strong performance in the second quarter and good visibility on demand and commodity prices for the second half of the year. In parallel with our increased investment in our supply chain, we will continue to invest in marketing and expand our retail presence to drive awareness and deepen brand loyalty with our consumers. Given our outperformance versus our expectations in Q2, we now expect net revenue to be evenly split between the first and second half of the year.

orata: Our long-term guidance also remains unchanged. We are targeting $1 billion in net revenue by 2027 with a growth margin of at least 35% and an EBITDA margin of 12-14%.

orata: Our updated 2024 guidance reflects a strong performance in the second quarter and good visibility on demand and commodity prices for the second half of the year.

orata: In parallel with our increased investment in our supply chain, we will continue to invest in marketing and expand our retail presence to drive awareness and deepen brand loyalty with our consumers.

Russell Diez Canseco: Given our outperformance versus our expectations in Q2, we now expect net revenue to be evenly split between the first and second half of the year. We were well above our long-term 35% growth margin target in the first half of the year, and we expect the second half of the year to continue this trend, albeit to a lesser degree. We expect the adjusted EBITDA margin in the first half of the year to be higher than our adjusted EBITDA margin in the second half.

Thilo Wrede: Given our outperformance versus our expectations in Q2, we now expect net revenue to be evenly split between the first and second half of the year. We were well above our long-term 35% growth margin target in the first half of the year, and we expect the second half of the year to continue this trend, albeit to a lesser degree. We expect the adjusted EBITDA margin in the first half of the year to be higher than our adjusted EBITDA margin in the second half.

Speaker Change: giveven our outperformance versus our expectations in q two we now expect net revenue to be eager split between the first and second half of the year

Thilo Wrede: We will well about our long-term 35% gross margin target in the first half of the year. And we expect the second half of the year to continue this trend, albeit to a lesser degree. We expect the adjusted EBITDA margin in the first half of the year to be higher than our adjusted EBITDA margin in the second half. The second half adjusted EBITDA margin outlook reflects our stepped up marketing investment in other investments in the future growth of Vital Farms. We continue to expect fiscal year 2024 capital expenditures in the range of 35 to 45 million dollars.

Speaker Change: We were well above our long-term 35% growth margin target in the first half of the year, and we expect the second half of the year to continue this trend, albeit to a lesser degree.

orata: We expect adjusted EBITDA margin in the first half of the year to be higher than our adjusted EBITDA margin in the second half. The second half adjusted EBITDA margin outlook reflects our stepped-up marketing investment and other investments in the future growth of Vital Farms.

Russell Diez Canseco: The second half adjusted EBITDA margin outlook reflects our stepped-up marketing investment and other investments in the future growth of Vital Farms. With the construction of the CIMO facility, we anticipate elevated CAPEX spending for the next few years, with the bulk of the spending in 2025 and 2026. We continue to add family farms at a great pace, and we have big plans to break ground on our new facility next year. We remain focused on driving greater retail penetration and raising brand awareness to deliver our eggs to more and more households with each passing year. Thank you for your time and interest in Vital Farms today and for the confidence that you have placed in us as your investors. With that, we will now be happy to take your questions.

Thilo Wrede: The second half adjusted EBITDA margin outlook reflects our stepped-up marketing investment and other investments in the future growth of Vital Farms. We continue to expect fiscal year 2024 capital expenditures in the range of $35 to $45 million. This includes spending on our new facility in Seymour, Indiana, the new farms that Russell mentioned, and our ongoing digital transformation project. With the construction of the CIMO facility, we anticipate elevated CAPEX spending for the next few years, with the bulk of the spending in 2025 and 2026.

orata: we continue to expect fiscal year two thousand and twenty four capital expandit showres in the range of thirty five to forty five million dollars

Thilo Wrede: This includes spending on our new facility and FEMA Indiana, the new farms that was mentioned, and our ongoing digital transformation project. With the construction of the FEMA facility, we anticipate elevated cap expanding for the next few years with a bulk of the spending in 2025 and 2026. We intend to fund the FEMA facility and our other projects with existing cash and operating cash flow, and we project that every dollar of CapEx investment in the new facility will generate more than $5 of annual revenue capacity, which we consider a very strong return. We continue to evaluate the monitor our capital allocation priorities, and we will provide updates as necessary.

orata: this includes spending on our new facility and fema in iana the new farms that was mentioned and our ongoing digital transformation project

Speaker Change: With the construction of this EMO facility, we anticipate elevated CAPEX spending for the next few years, with a bulk of this spending in 2025 and 2026.

Thilo Wrede: We intend to fund the Seymour facility and our other projects with existing cash and operating cash flow, and we project that every dollar of CapEx investment in the new facility will generate more than $5 of annual revenue capacity, which we consider a very strong return. We continue to evaluate and monitor our capital allocation priorities, and we will provide updates as necessary. Overall, our first half performance was strong, and we are excited to build on this momentum for the rest of 2024 and beyond.

orata: we intend to fund to see more facility and our other projects with existing cash and operating cash flow and we project that every dollar of capex investment in the new facility will generated more than five dollars of annual revenue capacity which we we consider a very strong return

orata: we continue to evaluate to monitor our capital allocation priorities and we will provide updates as necessary

Thilo Wrede: Overall, our first half performance was strong, and we are excited to build on this momentum for the rest of 2024 and beyond. We continue to add family farms at a great pace, and we have big plans to break ground on our new facility next year. We remain focused on driving greater retail penetration and raising brand awareness to deliver our ex to more and more households with each passing year.

Operator: Conference operator today.

orata: Overall, our first half performance was strong, and we are excited to build on this momentum for the rest of 2024 and beyond.

Operator: At this time, I would like to welcome everyone to the Vital Farms Incorporated Second Quarter, 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Thilo Wrede: We continue to add family farms at a great pace, and we have big plans to break ground on our new facility next year. We remain focused on driving greater retail penetration and raising brand awareness to deliver our eggs to more and more households with each passing year. Thank you for your time and interest in Vital Farms today and for the confidence that you have placed in us as your investors. With that, we will now be happy to take your questions.

Speaker Change: We continue to add family farms at a great pace, and we have big plans to break ground on our new facility next year. We remain focused on driving greater retail penetration and raising brand awareness to deliver our eggs to more and more households with each passing year.

Operator: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. Thank you.

Thilo Wrede: Thank you for your time and interest and buy the farms today and for the confidence that you're placing us with your investment.

Speaker Change: Thank you for your time and interest in Vital Farms today, and for the confidence that you have placed in us with your investment. With that, we will now be happy to take your questions.

Thilo Wrede: With that, we will now be happy to take your questions. Thank you.

Anthony Bucalo: And now, I would like to turn the call over to Anthony Bucalo, Vice President of Investor Relations. Please go ahead. Good morning and welcome to Vital Farms Second Quarter, 2024 earnings conference call on webcast.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue. And your first question comes from the line of... Brian Holland of D.A. David. Please go ahead.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and listening by a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue.

Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Operator: If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Brian Holland of D.A. David. Please go ahead.

Anthony Bucalo: I am Tony Bucalo, BP's Investor Relations, and I am joining the call today by Russell Diez-Konseko, President and Chief Executive Officer, and Thilo Wrede, Chief Financial Office. By now, everyone should have access to the company's second quarter, 2024 earnings press release issued this morning. This is available on the Investor Relations section of Vital Farms website at investors.vitalforms.com. Throughout this call, management may make forward-looking statements within the meaning of federal securities laws.

Speaker Change: If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, please press star 1 to join the queue.

Ryan Holland: And your first question comes from the line of Ryan Holland of DA Davis. Please go ahead. Yeah, thanks. Good morning.

Speaker Change: and your first question comes from the line of

Speaker Change: Brian Holland of D.A. Davidson

Brian Holland: Yeah, thanks. Good morning. I wanted to ask first about implied how much the marketing investment is going to be up maybe in the year and in the second half, kind of where that would put you on a relative basis to sales on an annualized basis, and maybe where you see that going forward versus where you've kind of been historically.

Brian Holland: Yeah, thanks. Good morning. I wanted to ask first about the implied, you know, step down in margin in the second half from the first half, which looks like it's going from high teens to high single digits. Obviously, Thilo, I think you laid out a lot of it, but maybe want to get a better sense for how much the marketing investment is going to be up maybe in the year and in the second half, kind of where that would put you on a relative basis to sales on an annualized basis, and maybe where you see that going forward versus where you've kind of been historically.

Thilo Wrede: I wanted to ask first about the implied, you know, step down in March and the second half and the first half, which, you know, looks like it's going from high teens to high single digits. Obviously, Thilo, I think you laid out a lot of it, but just maybe want to get a better sense for how much the marketing investment is going to be out maybe in the year and in the second half and kind of where that would put you on a relative basis to sales on an annualized basis and maybe where you see that going forward versus where you've kind of been historically.

Anthony Bucalo: These statements are based on management's current expectations and beliefs, and do involve risks and uncertainties that could cause actual results to differ materially from those described in the list for looking statements. Please refer to today's press release, the company's quarterly report on Form 10Q for the fiscal quarter ended June 30th, 2024, filed with the SEC today, as well as our other findings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed for implied in any forward-looking statements made today.

Speaker Change: Please go ahead.

Brian Holland: yeah thanks good morning i wanted to ask first about the implied

Speaker Change: you know, step down in margin the second half from the first half, which, you know, looks like it's going from high teens to high single digits. Obviously, Thilo, I think you laid out a lot of it, but just maybe want to get a better sense for.

Speaker Change: How much the marketing investment is going to be up, maybe in the year and in the second half, kind of where that would put you on a relative basis to sales on an annualized basis, and maybe where you see that going forward versus where you've kind of been historically?

Thilo Wrede: Yeah, a great question, Brian. Good morning.

Anthony Bucalo: Please note that on today's call, maps will refer to adjusted EBITDA and adjusted EBITDA margin, which are non-GAP financial measures. While the company believes these non-GAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAP. Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to the most comparable measures prepared in accordance with GAP.

Thilo Wrede: Yeah, a great question, Brian. Good morning. The marketing investments of last year, we did something similar where we concentrated marketing investments in the second half of the year. This year, we're planning an even bigger, bending on marketing investment, second half of the years, percent of net sales and it's simply driven by the fact that we have this upside in the first half versus our own chance. So we are, we have, we have better profitability, first half and what we have expected when we plan for the year. And while we have to let some of that flow to the bottom line, we also want to make sure that we make the appropriate investment.

Thilo Wrede: Look, marketing investments; last year we did something similar where we concentrated marketing investments in the second half of the year. This year we are planning an even bigger spending on marketing investments in the second half of the year as a percent of net sales. And it's simply driven by the fact that we have this upside in the first half versus our old plans. So we have better profitability in the first half than what we had expected when we planned for the year.

Speaker Change: Yeah, great question, Brian . Good morning.

Speaker Change: Marketing Investments, last year we did something similar where we concentrated Marketing Investments second half of the year. This year we are planning an even bigger

Speaker Change: spending on marketing investments second half of the year as a percent of net sales. And it's simply driven by the fact that we have this upside in the first half versus our own chance.

Russell Diez: With that, I will turn the call over to Russell Diaz-Konseko, President and Chief Executive Officer for Vital Plums. Good morning, and thank you for your time today. I'm pleased to announce that our momentum from the first quarter carried into the second. We delivered another great set of top-to-bottom results.

Speaker Change: So we have better profitability for ourselves than what we had expected when we planned for the year.

Thilo Wrede: And while we have to let some of that flow to the bottom line, we also want to make sure that we make the appropriate reinvestments when we can to ensure that the growth continues and we continue delivering the upside that we have. And Russell mentioned on the call that we've started this new advertising program around women's sports and how it connects to female farmers that we work with. There's a huge opportunity for us there.

Speaker Change: and while we are have to let some of that flow to the bottom line we also want to make sure that we make the appropriate the investments while we can to ensure that the growth continued and we continue delivering the upset that we have

Thilo Wrede: We can to ensure that the growth continues and we continue delivering the upside that we have. And what I mentioned on the call that we, we've started this new advertising program around women's boards, how it connects to female farmers that we work with. There's a huge opportunity for us there. I think the viewership of women's boards is up meaningfully over time. And given the, the profit upside from the first half, we just figure there is no opportunity for us here to continue building awareness and going out for the house of penetration that we have. Last year, we spent, you know, roughly, roughly 5% of our own sales on marketing spending.

Russell Diez: Our performance was driven by growing demand for our premium products and excellent execution from the great people working across Vital Plums. I'd like to thank all of our crew members throughout the organization for these really terrific results. Today, I'll start with our key financial headlines and then shift to new developments.

Speaker Change: and roughly mention on the call that we we started this new advertising program around women' sports how it connect a femal trce that we work with

Thilo Wrede: I think the viewership of women's sports is up meaningfully over time. And given the propelled-up side from the first half, we just figure there's an opportunity for us here to continue building awareness and going after the health of the penetration that we have. Last year, we spent roughly 5% of our net sales on marketing spending. I would expect a small increase relative to that level this year. And, long term, I think the 5 to 6% range is probably the right range for us right now. But we'll, you know, we'll continue to evaluate that as we continue to grow.

Speaker Change: There's a huge opportunity for us there. I think the viewership of women's sports is up meaningfully over time. And given the profit upside from the first half, we just figure there's an opportunity for us here to continue building awareness and going after the house of penetration that we have.

Russell Diez: I'll then hand it over to Tilo, and he will provide more detail on our second quarter financials and updated guidance for fiscal year 2024. With our strong start to the year, I'm happy to report that we're in a great position to both raise our guidance and accelerate investment in the long-term success of our We continue to expand our farm network, and we're adding a new egg washing and processing facility in Seymour Indiana. Additionally, we will be stepping up brand marketing investment in the back half of the year, driving our message to consumers as we push to reach 30 million households by 2027.

Speaker Change: Last year we spent

Speaker Change: roughly roughly five percent of owner sales on marketing spending i would expect the small increase relative to that level this year

Thilo Wrede: I would expect a small increase relative to that level this year. And long term, I think in the 5% to 6% range is probably the right range for us right now. But we'll, you know, we'll continue to evaluate that as we continue to grow.

Speaker Change: and long term i think the five to six percent branches probably their right range for us right now but ' 'll continue to revalue at that as we continue to grow

Russell Diez: Let's get right to the key financial headlines. We had another excellent top line performance with record second quarter net revenue of $147.4 million, up 38.5%. You might remember that we guided for 300 basis points of tailwind for sales in the quarter. This was due to our laughing some negative product ordering dislocations related to even influenza last year. We did enjoy some benefit from this comparison. However, we still performed well above our expectations in the first half of 2024 our sales group 31% on top of a first half 2023 comparison of 41%.

Brian Holland: And then just switching gears to the new egg-washing facility, can you just, for investors and Russell, appreciate the update on Springfield going from $700 million to $800 million, but just within the context of a $1 billion revenue target by 2027, just help us understand the bridge from onboarding that facility and ramping that up, what, how that plays into the billion dollars. If, you know, what other considerations or flexibility do you have to make sure that you're from a, you know, distribution capacity standpoint supporting that? And then maybe Thilo, just in that context, any thoughts on kind of the CapEx components between now and starting up that facility?

Ryan Holland: Appreciate the color.

Brian Holland: And then just switching gears to the new egg washing facility. Can you just for investors and also appreciated the update on on Springfield going from 700,000 to 800 million. But just within the context of a $1 billion revenue target by 2027, just help us understand the bridge from onboarding that facility and ramping that up. How that plays into the billion dollars if, you know, what other considerations or flexibility do you have to make sure that you're from a distribution capacity standpoint supporting that. And then maybe Teelo just in that context, just any thoughts on kind of the cat backs components between now and starting up that facility.

Speaker Change: appreciate the color and then just switching gears

Speaker Change: to the new egg washing facility

Speaker Change: Can you just, for investors, and Russell, appreciate the update on Springfield going from $700 million to $800 million, but just within the context of a $1 billion revenue target by 2027, just help us understand the bridge from onboarding that facility and ramping that up.

Speaker Change: umwhat

Speaker Change: How that plays into the billion dollars.

Speaker Change: if you know what other considerations are flexibility do you have to make sure that you're from you know distribution capacity standpoint supporting that and then maybe t or just in that context just any thoughts on kind of the capex components between now and starting up that facility

Russell Diez: We delivered another strong gross margin performance this quarter. Who said by sales growth productivity gains, collective pricing, efficient supply chain execution, and a more benign commodity cost environment, gross margin and proved 362 basis points to 39.1% in the quarter and improved 381 basis points to 39.5% for the first half. In addition to our strong gross margin performance, we delivered $23.3 million of adjusted EBITDA of 105% versus the second quarter of 2023.

Brian Holland: Thanks, Brian. Good to be with you today. So, as you have learned over time, we're very intentional and planned very well in advance to make sure that we don't face the common constraints on growth here at a fast growing company. For example, we started the site selection for this plant about two years ago and made this announcement just in the last quarter, and that's well in advance of us opening the facility. Now, we believe that we will have that facility up and running by the end of 2026 or the beginning of 2027, and that that will be well-timed with our hitting our capacity in Springfield and needing to add capacity.

Brian Holland: Thanks, Brian. It's good to be with you today.

Speaker Change: Thanks, Brian. Good to be with you today.

Speaker Change: so as as you have learned over time we're very intentional and plan very well in advance to make sure that we don't face the common constraints on growth here in a fastgrowing company

Speaker Change: for example we started the site selection for this plant about two years ago

Russell Diez Canseco: So, as you have learned over time, we're very intentional and plan very well in advance to make sure that we don't face the common constraints on growth here at a fast-growing company. For example, we started the site selection for this plant about two years ago and made this announcement just in the last quarter, and that's well in advance of us opening the facility. Now, we believe that we will have that facility up and running by the end of 2026 or the beginning of 2027, and that that will be well-timed with us hitting our capacity in Springfield and needing to add capacity.

Speaker Change: and made this announcement just in the last quarter, and that's well in advance of us opening the facility.

Russell Diez: You're to date we've delivered $52.3 million in adjusted EBITDA of 108% from the first half of last year. Our adjusted EBITDA margin for the quarter improved to 15.8% of 512 basis points from last year. Our past year adjusted EBITDA margin improved 656 basis points to 17.7%. Strong consumer demand help drive our top and bottom line success this quarter. We believe we are in a virtuous cycle of higher consumer demand driving expanded distribution and expanded distribution driving further demand.

Speaker Change: now we believe that we will have that facility up and running by the end of two twenty six or the beginning of two and seven and that that will be well timed with our hitting our capacity in springfield and meeting to add capacity

Thilo Wrede: There are other levers that we can pull for short periods of time. In case, for example, we have a big uptight surprise and volume. There's more space in Springfield that we could potentially leverage to temporarily add capacity if that became necessary. But we've been very deliberate in our growth, and we feel pretty confident about the projections we're using that led us to the timing of seed more. And, Brian, on your CapEx question, the cross-full in the Springfield facility, we haven't fully talked about it, as I think we've talked about. The revenue capacity that the new Seymour facility brings us and that we think for every dollar of CapEx that we put in, we get five dollars of revenue out of it. That CapEx will be spent in 25 and 26th, the vast majority of it.

Russell Diez Canseco: There are other levers that we can pull for short periods of time, in case, for example, we have a big upside surprise in volume. There's more space in Springfield that we could potentially leverage to temporarily add capacity if that became necessary. But, you know, we've been very deliberate in our growth, and we feel pretty confident about the projections we're using that led us to the timing of Seymour.

Speaker Change: there are other levers that we can pull for short periods of time in case for example we have a big upside surprise and volume

Speaker Change: there's more space and spring field but that we couldpotentially leverage to temporarily add capacity it that became necessary but we've been very deliberate in our growth and we feel pretty confident about the projections we're using that led us to the timing a see more

Russell Diez: We continue to build our shelf presence and stores where we're already prominent accelerating our sales performance. Year on year our total distribution points have increased by 19% to 453 in the natural channel and by 17% to 215 in the food channel. We still have much more room to grow by adding more items to existing shelves at locations where we already have a strong presence. Yes, I'm pleased by our strong sale distribution and gross margin performance this quarter.

Thilo Wrede: And Brian, on your CapEx question, so the cost of the new Springfield facility, we haven't fully talked about it, but I think we've talked about it. The revenue capacity that the new CIMA facility brings us, and we think for every dollar of CapEx that we put in, we get $5 of revenue out of it. That CapEx will be spent in 2025 and 2026, the vast majority of it, simply because we saw breaking ground in the first half next year, and that's when the spending really starts. Russell, in his prepared remarks, had talked about the starter farms that we are now starting to plan for as well with our clients on land there.

Speaker Change: Hey Brian , on your CapEx question, so the cost for the new Springfield facility, we haven't fully talked about it, I think we've talked about

Speaker Change: The revenue capacity that the new CIMA facility brings us, and that we think for every dollar of CapEx that we put in, we get $5 of revenue out of it.

Speaker Change: That capex will be spent in 2025 and 2026, the vast majority of it, simply we start breaking ground first half of next year and that's when the spending really starts.

Russell Diez: I'm also thankful for all of our crew members who helped make that happen. We are well positioned to meet future consumer demand and we continue to invest to make that happen. Our brand is at the core of who we are and our brand marketing remains a powerful lever of our success. We're always looking for ways to drive brand awareness in meaningful and culturally relevant moments. This summer, with Women's Sports viewership on the rise, we have a new campaign that celebrates female farmers and athletes alike.

Thilo Wrede: Simply, we've stopped breaking ground for five nights a year, and that's when the spending really starts. Russell and the Preparatory Marks have talked about the starter farms that we are now starting to plan for as well. With the clients on land there, there will be additional CapEx that goes into those starter farms as well. I think of the 10Q, we talked about 2,530 million dollars of CapEx over the next 12 months, and we'll probably continue to make progress on these starter farms beyond those 12 months. So, for the next two years, we'll have elevated CapEx spent, elevated compared to our guides for this year as well, but right now we feel very good that we can fund all of that out of operating cash flow. And don't forget we have 153 million dollars of cash on the balance sheet, so we have a very, very healthy cash cushion right now.

Speaker Change: was a lot of prepare remarks that talked about the starter formms that we are now starting to plan for us well with clients on that there there will be additional capex that go into those suller fs as well

Brian Holland: There will be additional CapEx that goes into those starter farms as well. In the 10Q, we talked about $20 to $30 million of CapEx over the next 12 months, and we'll probably continue to make progress on these data farms beyond those next 12 months. So for the next two years, we'll have elevated capex expenses, elevated compared to our guidance for this year as well. But right now, we feel very good that we can fund all of that out of operating cash flow. And don't forget, we have $153 million in cash on the balance sheet. So we have a very, very healthy cash cushion right now.

Speaker Change: I think at the 10Q we talked about $20 to $30 million of capex over the next 12 months.

Russell Diez: We expect this campaign would deliver more than 350 million advertising impressions across sports networks during games, tournaments, and matches. This includes the Women's Wimbledon tournament, just concluded in July, and the National Women's Soccer League and Ladies Professional Golf Association through the fall. We also have a few spots running during the Olympics coverage on the USA Network. Joining the Women's Sports conversation continues to deliver outsized results, resonating with our highly engaged and growing audience. We expect to generate 650 million earned impressions through press coverage that highlights our unique campaign.

Speaker Change: And we'll probably continue to make progress on these data farms beyond those next 12 months. So for the next two years, we'll have elevated cap expense, elevated compared to our guidance for this year as well.

Speaker Change: but right now we're feel very good that we can fund all of that out of operating cash flow and don't forget to one hundred ty three million those of cash on the balance sheet so we a very very healthy cash person by that

Brian Holland: Great.

Brian Holland: Great. We'll leave it there. Thank you.

Brian Holland: We'll leave it there. Thank you.

Speaker Change: Great. We'll leave it there. Thank you.

Rob Dickerson: Three next questions from the line of Rob Dickerson of Jeffries. Please go ahead. Great. Thanks so much. Good morning, guys.

Operator: Your next question comes from the line of Rob Dickerson of Jeffries. Please go ahead.

Speaker Change: Your next question comes from the line of Rob Dickerson of Jeffries. Please go ahead.

Unknown Speaker: Great, thanks so much. Good morning, guys. You know, there's increased distribution. The velocities are great, and demand is driving distribution. Distribution is driving demand. Then why couldn't we see, you know, a little bit more of that kind of all going upside as we get through at least Q3?

Robert Dickerson: Great, thanks so much. Good morning, guys. I guess the first question is, let's say, what's the primary or what was the primary driver of the nice volume performance in the quarter, even, you know, relative to your solid expectation coming out of Q1, right? It seems like there was this bump, so clearly, the question now is, well, You know, there's increased distribution. The velocities are great, and demand is driving distribution. Distribution is driving demand. Then why couldn't we see, you know, a little bit more of that kind of all going upside as we get through at least Q3?

Rob Dickerson: Great, thanks so much. Good morning, guys.

Rob Dickerson: I guess just first question is, let's say what's the primary or what was the primary driver of the nice volume performance in the quarter, even, you know, relative to your solid expectations coming out of Q1, right? It seems like there was this bump. So clearly the question now is, well, if there's increased distribution, the velocities are great, and demand is driving distribution, distribution is driving demand. Then why couldn't we see, you know, a little bit more of that kind of all going upside as we get through at least Q3. Thanks.

Russell Diez: Furthermore, we have good news about our supply chain this quarter. First, we're happy to announce that we're now working with more than 350 family farms within our network, up from more than 300 at the beginning of the year. Our family farmers are central to what we do in our business. We believe our ability to attract and support new farmers is a critical strength of our company. We continue to add farms to support our growth as we push toward a billion dollars in revenue.

Rob Dickerson: I guess just first question is, let's say, what's the primary or what was the primary driver of the nice volume performance in the quarter even, you know, relative to

Speaker Change: Your solid expectation is coming out of Q1, right? It seems like there was this bump.

Speaker Change: So clearly the question now is, well, if there's increased distribution, the velocities are great and demand is driving distribution, distribution is driving demand, then why couldn't we see a little bit more of that kind of all going upside as we get through at least Q3? Thanks.

Russell Diez: Next, in June, we made the formal announcement of the location for our new eggwashing and packaging facility. This 72-acre site will be in Seymour, Indiana, and when finished, we'll help launch us into our next stage of growth. We plan to break ground in 2025 and expect to begin operations there in 2027.

Robert Dickerson: Thanks.

Thilo Wrede: Yeah, great question about this morning. I think on the first quarter call, three months ago, we had talked about how first quarter was just having an also under its easiest, what's operating really well, consumer demand was strong. And I think second quarter, we saw a continuation of that theme, you know, this virtual cycle that Russell has mentioned in their prepared remarks about distribution driving demands, demand driving distribution that continues. ECS continues to operate really well. So it's really this virtual cycle that we've talked about; it continues to manifest itself. For the back half of the year, you know, we assume that at some point in terms of ECS operating efficiency, we're going to request to a mean, this very smooth operation that we had in the first half of the year. We don't necessarily expect it to continue in perpetuity; at some point the machine will, you know, break down unexpectedly and then we'll have to fix it and do some maintenance outside of the plan cycle.

Speaker Change: prerequestionushing bo good running

Speaker Change: agre

Speaker Change: i think the first quarter col or three months ago we have talked about how first quarter 's just having an also under 'is eas was operating reallyty well

Russell Diez: Our world-class egg-central station facility in Springfield, Missouri is still finding ways to improve its already impressive performance. As I remarked last quarter, we're just flat out better at getting our high-quality eggs packed and shipped. With Seymour, what's most exciting for us is that the construction and operational plans for the new facility will be built upon our key learnings and successes from Springfield. This includes everything from people development to production. Additionally, we expect to have ample room to expand past our 2027 revenue goals.

Speaker Change: And I think second quarter, we saw a continuation of that theme, you know, this virtual cycle that Russell had mentioned in the prepared remarks about distribution driving demand and demand driving distribution that continues, ECS continues to operate really well.

Speaker Change: So, it's really this virtual cycle that we've talked about. It continues to manifest itself. For the back half of the year, you know, we...

Russell Diez: We expect Seymour will create at least 150 jobs for the local community in its first phase. When finished over the long term, we expect Seymour to support approximately 165 new family farmers and to help generate more than $350 million in additional revenues. This facility will complement Springfield, which we now estimate has $800 million in revenue capacity.

Speaker Change: We assume that at some point, in terms of ECS operating efficiency, we will regress to a mean.

Speaker Change: This very smooth operation that we had in the first half of the year, we don't necessarily expect it to continue in perpetuity at some point.

Speaker Change: The machine will, you know, break down unexpectedly, and then we'll have to fix it and do some maintenance outside of the planned cycle. And so our guidance reflects that ECS at some point will probably run into some hiccups that we just didn't see in the first half.

Russell Diez: Let me briefly elaborate on this last data point. Since our ECS Springfield expansion in 2022, we've discussed a revenue capacity of $700 million for this facility. However, we want to give you an up-to-date estimate. Since 2022, the price mix of our portfolio has evolved and we've become significantly more efficient. We estimate that this combination has given us at least $100 million in estimated additional revenue capacity since our last estimate in 2022.

Thilo Wrede: And so our guidance reflects that ECS at some point will probably run into some hiccups that we just didn't see in the first half. And so we just want to make sure we don't get ahead of our skis there. Consumer demand for us continues to be strong, right? You publish meals and reports every two weeks; you see the scanner data that continues to be strong. But it is more our own cautiousness to make sure that we don't run into a situation where we promise something and then we run into an unforeseen issue at ECS that will prevent us from delivering on that.

Speaker Change: and so we we just want to make sure we don't get ahead of our skis there.

Speaker Change: Consumer demand for us continues to be strong, right? You publish Nielsen reports every two weeks. You see the scanner data. That continues to be strong.

Speaker Change: But it is more our own consciousness to make sure that we don't run into a situation where we promise something and then we run into an unforeseen issue at ECF that will prevent us from delivering on that.

Russell Diez: Finally, we're in the planning stages of building a handful of farms ourselves. This year, we've purchased $3 million in farmland in Indiana within a short distance of our planned facility in Seymour. This land is where we plan to build these new farms. When up and running, these starter farms will serve two purposes. First, building and running a small number of our farms ourselves will allow us to test new ideas and processes without imposing on our existing family farm system.

Rob Dickerson: Okay, very clear; prudence good.

Rob Dickerson: And then I guess just another kind of more technical P&L question. You know, Q1, the gross margin is great. Q2, the gross margin is great. And I think, kind of as you, you know, put up at least the Q1 number, right, there's kind of walking everybody back a little bit just with respect to, you know, kind of go forward, run rate. You know, you've never really spoke into the business kind of getting into the high 30% gross margin and totally understand that. And I totally understand a lot of the stars that have aligned in the first half.

Speaker Change: Okay, very clear. Prudence, good. And then I guess just...

Speaker Change: Another kind of more technical P&L question, you know, Q1, the gross margin was great, Q2, the gross margin was great.

Speaker Change: And I think kind of as you, you know, put up at least the Q1 number, right, there's...

Speaker Change: kind of walk in everybody back a little bit just with respect to you know kind of go forward run rate you know you've never really spoken into the business kind of getting into the high thirty percent gross margin and totally understand that and i totally understand a lot of the stars that have allineed in the first half

Russell Diez: This is an operational, creating a turnkey solution for buyers. These farms will provide the potential for immediate cash flow, as well as mitigation of much of the initial startup risks for new farmers and their families. Note that anticipated project costs have been included in our capital expenditure guidance.

Thilo Wrede: All that said, you know, I feel like part of the kind of conservatism as you got, you know, where you think through the year was also just around feed cost and input cost. And where we sit today, they're actually, you know, better than they were a few months ago. If I'm thinking more corn, corn soybean. So maybe just, you know, a couple comments as to, you know, the why you know, you couldn't potentially do a gross margin and even Q3, you know, that's similar to Q2. Maybe that's off. Thanks, guys.

Speaker Change: all that said you know i feel like part of the kind of conservatism as you got you know where you think through the year was also just around fee cost andinput cost

Speaker Change: And where we sit today, they're actually, you know, better than they were a few months ago.

Russell Diez: Before I hand it over to Thilo, I want to share a quick update on butter. As you recall, we relaunched our butter line in April. This was after an extensive global search for a supply source which we believe best represented our Vital Farms philosophy and mission. We chose a supplier in Ireland as our primary source, and we are now working closely with family farms there to deliver a delicious creamy product that's 90% grass fed.

Speaker Change: If I'm thinking more corn, soybeans, so maybe just, you know, a couple comments as to, you know.

Speaker Change: the Y, you know, you couldn't potentially do a gross margin and even Q3, you know, that's similar to Q2. Maybe. That's all. Thanks, guys. Yeah, no, fair question. Look, the, when we look at commodity costs,

Thilo Wrede: Yeah, no good question. Look, when we look at commodity costs, in my estimation, Q2 was probably the biggest deal with your benefit and follow commodity costs. So the margin benefit that we get from that, we probably peaked in Q2. And look, I'm not in the business of 4,000 commodity costs, right? If they keep moving around, who knows what happens to us of the year? We have visibility into the cost that we have in Q3. We have a bit of visibility into Q4. Based on that, I would assume that Q2 was the best year of a year comparison.

Russell Diez: Our choice to import from Ireland is consistent with our commitment to animal welfare and family farm support. Here in the US, we reinforce the brand with attractive new packaging, giving the product a premium brand halo that stands out to consumers on the show. Although it's still early day, I'm happy to report that we're seeing significant progress since the relaunch. Our overall butter business is down so far this year as we're lapping the discontinuation of our tub butter stew late last year.

Speaker Change: In my estimation, Q2 was probably the biggest year-over-year benefit in fall of commodity costs.

Speaker Change: So the margin benefit that we get from that probably peaked in Q2.

Russell Diez: However, we expect a return to growth in the second half of the year. Our stick butter business is growing and our velocities have picked up materially where we are present. The future looks good for butter, and I'm happy with what we've accomplished in such a short period. My advice is to go out and find some for your fridge. We keep it in our house and it's terrific.

Speaker Change: And look, I'm not in the business of forecasting commodity costs, right? If they keep moving around, who knows what happens the rest of the year? We have visibility into the cost that we'll have in Q3, we have a bit of visibility into Q4. Based on that, I would assume that Q2 was the best year-over-year comparison.

Thilo Wrede: We talked in the prepared remarks about the other business starting to grow again that will put pressure on growth margin. We just a bit of maintenance that we need to do with ECS that will flow through parks that will hit growth margin. So that is why we are saying that we still assume that fully year will be for the back half of the year will be about our long-term guidance, just not to the same degree that we have in the first half of the year. Okay, sounds great.

Speaker Change: There's a bit of maintenance that we need to do at ECS that will flow through COGS that will hit gross margin. So that is why we are saying that we still assume that for the year will be, for the back half of the year, will be about our long-term guidance, just not to the same degree that we had in the first half of the year.

Russell Diez: I'd like to wrap up with just a few comments. We got off to a great start in the first quarter, and that momentum carried into the second. Our business is in great shape, and I'm excited for what we've accomplished so far this year. It's been exciting to watch our growth while serving our stakeholders and delivering on our financial promises. We have big plans for our future, and we know our growth will require investment and long-term thinking.

Rob Dickerson: Good job, guys. Thanks.

Ben Klieve: Your next question comes from the line-up: Ben Clive from Lake Street. Please go ahead. All right, thanks for taking my questions. Congratulations on another nice quarter here. In question about the initiative you have around Seymour, roughly you talked about purchasing land for kind of R&D farms, and it sounds like a bit of the BD tool. I'm curious if one you could comment on the degree to which $3 million you've invested into this initiative so far represents the bulk of this initiative or if that's going to expand in any material fashion.

Speaker Change: Your next question comes from the line of Ben Klieve from Lake Street. Please go ahead.

Russell Diez: We will continue doing the hard work of recruiting new family farms and adding new capacity to achieve our ambitious financial goals. This expansion of capacity runs parallel with the investments we're already making in our people, brand, and infrastructure. As a result, we're confident that we are well positioned to meet our updated guidance for the year and our long-term financial targets beyond that.

Ben Klieve: All right, thanks for taking my questions. Congratulations on another nice quarter here. Question about the initiative you have around Seymour. Russell, you talked about purchasing land for kind of R&D farms.

Ben Klieve: I'm curious if one, you could comment on the degree to which the $3 million you've invested in this initiative so far represents the bulk of this initiative or if that's going to expand in any material fashion.

Thilo Wrede: And with that, we'll now go to our CFO, Kylovereda, for further discussion. Thank you, Russell. Hello, everyone, and thank you for joining us today.

Russell Diez: And then if you could kind of characterize this initiative between this kind of R&D farm versus kind of a longer-term business development tool, would be curious about both of those classes. Good morning, Ben. Thanks for being with us, and I appreciate the questions.

Thilo Wrede: I will now review our financial results for the first quarter in the June 30th, 2024, and then provide details on our updated guidance for the year 2024. We followed our record first quarter results with another great performance in the second quarter. Our net revenue rose to $147.4 million, but 38.5% versus not here. We posted 35.8% volume growth and modest price makes sense, and David. Consistent with our performance from the first quarter, volume growth was driven by strong consumer demand and expansion at both new and existing retailers.

Speaker Change: And then if you could kind of characterize this initiative between this kind of R&D farm versus kind of a longer term business development tool, we'd be curious about both of those thoughts.

Unknown Speaker: Thanks.

Thilo Wrede: Yeah, a great question, Bob. Good morning.

Thilo Wrede: You know, we assume that at some point, in terms of ECS operating efficiency, we will regress to the mean. This very smooth operation that we had in the first half of the year, we don't necessarily expect that to continue in perpetuity. At some point, the machine will break down unexpectedly, and then we'll have to fix it and do some maintenance outside of the planned cycle. And so our guidance reflects that ECS will probably run into some hiccups that we just didn't see in the first half.

Thilo Wrede: I think on the first quarter call three months ago, we talked about how the first quarter was just humming and awe, so ECS was operating really well, and consumer demand was strong. And I think in the second quarter, we saw a continuation of that theme. You know, the switch of cycle that Russell mentioned in his prepared remarks about distribution driving demand and demand driving distribution that continues, ECS continued to operate really well. So it's really this virtual cycle that we've talked about. It continues to manifest itself in the back half of the year.

Unknown Speaker: And look, I'm not in the business of forecasting commodity costs, right? If they keep moving around, who knows what will happen the rest of the year? We have visibility into the costs that we'll have in Q3, and we have a bit of visibility into Q4. Based on that, I would assume that Q2 was the best year-over-year comparison. We talked in the prepared remarks about a business starting to grow again, and that will put pressure on the growth margin.

Speaker Change: Good morning, Ben. Thanks for being with us and appreciate the questions. Yeah, I'm really excited about this initiative, so I'll talk a little bit about the purpose.

Russell Diez: Yeah, I'm really excited about this initiative, so I'll talk a little bit about the purpose and the goals, and then Tito can talk about kind of the capital expenditure, you know, the map road map. As we said in the remarks, there are two things that I believe will be meaningful to Vital Farms and all of our stakeholders coming out of this initiative. The first is that we still have a lot of innovation to try and to incorporate. You know, we've been traveling to Europe almost annually for 10 years, and they've been doing things the way we do it for a lot longer. Every time we go there, we learn and we get new ideas, and we hear from them what's working.

Unknown Speaker: All right, thanks for taking my questions. Congratulations on another nice quarter here.

Thilo Wrede: And so we just want to make sure we don't get ahead of ourselves there. Consumer demand for us continues to be strong, right? You publish Nielsen reports every two weeks, and you see the scanner data, that continues to be strong. But it is more our own consciousness to make sure that we don't run into a situation where we promise something, and then we run into an unforeseen issue at ECF that will prevent us from delivering.

Benjamin Klieve: I have a question about the initiative you have around Seymour. Russell, you talked about purchasing land for kind of R&D farms, and it sounds like a bit of the BD tool. I'm curious if, one, you could comment on the degree to which the $3 million you've invested in this initiative so far represents the bulk of this initiative or if that's going to expand in any material fashion. And then you could kind of characterize this initiative as this kind of R&D farm versus kind of a longer-term business development tool. I would be curious about both of those thoughts.

Ben Klieve: and the goals. And then Thilo can talk about kind of the capital.

Thilo: Expenditure Roadmap.

Robert Dickerson: Okay, very clear. Prudence, good.

Speaker Change: As we said in the remarks, there are two things that I believe will be meaningful to Vital Farms and all of our stakeholders coming out of this initiative.

Thilo Wrede: This volume performance was in line with our mostly volume-driven growth plans for this year. Growth profit was boosted by revenue growth, scale benefits and operational efficiency. These factors, along with price-mix benefits and lower conventional commodity and diesel costs, also contributed to higher margins. This was partially offset by an increase in the promotional rate and an increase in labor and overhead costs to keep up with our growth. SGNA expenses for the second quarter of 2024 were 33.3 million dollars or 22.6% of net revenue compared to 23.9 million dollars or 22.5% of net revenue in the second quarter of last year.

Russell Diez Canseco: Good morning, Ben. Thanks for being with us. I appreciate the questions. Yeah, I'm really excited about this initiative. So I'll talk a little bit about its purpose and its goals. And then Thilo can talk about kind of the capital expenditure, you know, roadmap. The first thing is that we still have a lot of innovation to try and incorporate. You know, we've been traveling to Europe almost annually for 10 years, and they've been doing things the way we do them for a lot longer. And every time we go there, we learn and we get new ideas, and we hear from them what's working. And, you know, you can't do everything at once.

Robert Dickerson: And then I guess just... Another kind of more technical P&L question. You know, in Q1, the gross margin was great. In Q2, the gross margin was great. And I think kind of as you, you know, put up at least the Q1 number, right, there's kind of walking everybody back a little bit just with respect to, you know, kind of going forward run rate. You know, you've never really spoken to the business kind of getting into the high 30% gross margin and totally understand that.

Robert Dickerson: And I totally understand a lot of the stars that have aligned in the first half. All that said, you know, I feel like part of the kind of conservatism you got, you know, or you think through the year was also just around feed costs and input costs. And where we sit today, they're actually, you know, better than they were a few months ago. If I'm thinking more corn, soybeans, so maybe just, you know, a couple comments as to why you couldn't potentially do a gross margin and even Q3, that's similar to Q2. Maybe. That's all.

Thilo Wrede: Yeah, fair question. Look, when we look at commodity costs, In my estimation, Q2 was probably the biggest year-over-year benefit and fall in commodity costs. Pamela Kaufman.

Speaker Change: The first is that we still have a lot of innovation to try and to incorporate. You know, we've been traveling to Europe almost annually for 10 years.

Ben Klieve: And they've been doing things the way we do it for a lot longer. And every time we go there, we learn, and we get new ideas, and we hear from them what's working. And, you know, you can't do everything at once.

Thilo Wrede: And you know, you can't do everything at once. We want to start to implement more of what we've seen works so well over there, and we want to be able to prove to our network of small family farmers the impact on them, on the health of their birds, and on their bottom lines before we ask them to sort of make that investment themselves. We're not in the habit of forcing additional cat-backs on our farmers within the course of our working relationship. So that's one, which is we get to test and learn. And then the other is, as you well know, adding a farm is a long lead time exercise.

Russell Diez Canseco: We want to start to implement more of what we've seen work so well over there, and we want to be able to prove to our network of small family farmers the impact on them of the health of their birds and on their bottom lines before we ask them to sort of make that investment themselves. We're not in the habit of forcing additional capital expenditure on our farmers within the course of our working relationship.

Speaker Change: We want to start to implement more of what we've seen work so well over there. And we want to be able to prove to our network of small family farmers the impact.

Speaker Change: on them on the health of their birds and on their bottom lines before we ask them to sort of make that investment themselves we're not in the habit of forcing additional capex on our farmers within the course of our our working relationship

Thilo Wrede: So the margin benefit that we get from that probably peaked in Q2. And look, I'm not in the business of forecasting commodity costs, right? If they keep moving around, who knows what happens the rest of the year?

Thilo Wrede: We have visibility into the cost that we'll have in Q3. We have a bit of visibility into Q4. Based on that, I would assume that Q2 was the best year-over-year comparison. We talked in the prepared remarks about if other businesses start to grow again, that will put pressure on gross margin. We still assume that the backup for the year will be about our long-term guidance, just not to the same degree that we had in the first half of the year. Okay, sounds great.

Robert Dickerson: Okay, sounds great. Good job, guys.

Operator: Your next question comes from the line of Ben Klieve from Lake Street. Please go ahead.

Russell Diez Canseco: So that's one, which is we get to test and learn. And then, and then the other is, as you well know, adding a farm is a long-term exercise. It takes as much as a year to go from deciding we want more eggs a year from now to actually having a new farmer with a farm that's operating and actually producing those eggs, which frankly just puts a lot more accuracy on our estimate of the

Benjamin Klieve: All right, thanks for taking my questions. Congratulations on another nice quarter here.

Ben Klieve: So that's one, which is we get to test and learn.

Thilo Wrede: The increase in SGNA this quarter was driven primarily by higher professional services expenses, employee related costs, including stock-based compensation, and overall increase in employee headcount, brokerage and marketing expenses, and technology and software related expenses. These costs all reflected the expansion of the business. Shipping in distribution costs rose in absolute terms but declined as a percentage of sales. Shipping in distribution expenses in the second quarter rose to 7.2 million dollars or 4.9% of net revenue compared to 5.9 million dollars or 5.5% of net revenue in the second quarter of 2023.

Speaker Change: And then the other is, as you well know, adding a farm is a long lead time exercise.

Russell Diez: It takes as much as a year to go from deciding we want more eggs a year from now and actually having a new farmer with a farm that's operating and actually producing those eggs. And sometimes, you know, the year is one issue. Heller, Mark, is that when we're ready to have farmers producing eggs in Indiana, we have 10 say more or less farms ready to go, which frankly just puts a lot more accuracy on our estimate of the time frame. So I think this is an exciting benefit for us and an exciting benefit for the farmers, and frankly, for the chickens.

Speaker Change: It takes as much as a year to go from deciding we want more eggs a year from now and actually having a new farmer with a farm that's operating and actually producing those eggs. And sometimes, you know, the year is one issue.

Speaker Change: But there's also variability, which is another issue, because a lot of the up-front

Speaker Change: work of finding the right piece of land, getting financing from the bank, finding the right contractor to build the barn, getting in line for the import of equipment with sometimes disrupted ocean freight, etc.

Thilo Wrede: The increase in shipping in distribution expense was driven by higher sales volumes, partially offset by favorable line haul and fuel rates. Net income for the second quarter of 2024 was 16.3 million dollars or 36 cents per diluted share compared to 6.7 million dollars or 15 cents per diluted share for the second quarter of 2023. The adjusted EBITDA for the second quarter of 2024 more than doubled to 23.6 million dollars or 15.8% of net revenue compared to 11.3 million dollars or 10.7% of net revenue for the second quarter of 2023.

Speaker Change: can create variability.

Benjamin Klieve: I have a question about the initiative you have around Seymour. Russell, you talked about purchasing land for kind of R&D farms, and, you know, it sounds like a bit of the BD tool. I'm curious if, one, you could comment on the degree to which the $3 million you've invested in this initiative so far represents, you know, the bulk of this initiative or if that's going to expand in any material fashion. And then if you could kind of characterize this initiative as this kind of R&D farm versus kind of a longer-term business development tool. I would be curious about both of those thoughts.

Speaker Change: And one of the really exciting things about having a handful of these farms right where we want them in Indiana near Seymour.

Speaker Change: is that when we're ready to have farmers producing eggs in Indiana, we have 10, say, more or less, farms ready to go, which frankly just puts a lot more accuracy on our estimate of the time frame.

Speaker Change: So I think this is an exciting benefit for us and an exciting benefit for the farmers and frankly for the chickens.

Thilo Wrede: Yeah, thanks, Russell, that was really helpful. Yeah, and Tilo, any input on the level of investment beyond the $3 million would be great. Yeah, as I said before in the queue, I think we mentioned that for the next 12 months, we plan to spend $20 to $30 million on this. The $3 million so far was full of land purchase; now we need to actually construct the barns and put the equipment into the barns and so on. I would assume that we'll continue to invest in this approach for the next 12 months, and so there will be continued cab expense here.

Russell Diez Canseco: Good morning.

Thilo Wrede: Now a quick update on our capital structure. Our cash, cash equivalent and investment securities increased by 35.9 million dollars in the second quarter. And as of June 30, 2024, we are total cash, cash equivalent and marketable securities of 152.7 million dollars with no debt outstanding. Now looking ahead for the full fiscal year 2024, we are now guiding to net revenue of at least 590 million dollars or at least 25% growth compared to our previous expectation of at least 575 million dollars or at least 22% growth.

Thilo: Yeah, thanks Russell, that was really helpful. Yeah, and then Thilo, any input on the level of investment beyond the three million dollars would be great.

Thilo Wrede: Yeah, as I said before, in the queue, I think we mentioned that for the next 12 months, we plan to spend 20 to 30 million dollars on this. The 3 million dollars so far were for land purchase; now we need to actually construct the barns and put the equipment into the barns, and so on.

Thilo: Yeah, as I said before, in the queue, I think we mentioned that for the next 12 months, we plan to spend $20 to $30 million on this. The $3 million so far was for land purchase. Now we need to actually construct the barns and put the equipment into the barns and so on.

Russell Diez Canseco: Good morning, Ben. Thanks for being with us. I appreciate the questions. Yeah, I'm really excited about this initiative. So I'll talk a little bit about its purpose and its goals. And then Thilo can talk about the kind of capital expenditure, you know, roadmap. As we said in the remarks, there are two things that I believe will be meaningful to Vital Farms and all of our stakeholders coming out of this initiative. The first is that we still have a lot of innovation to try and incorporate.

Speaker Change: I would assume that we'll continue to invest in this approach past the next 12 months.

Russell Diez Canseco: You know, we've been traveling to Europe almost annually for 10 years, and they've been doing things the way we do them for a lot longer. And every time we go there, we learn, we get new ideas, and we hear from them what's working. And, you know, you can't do everything at once. We want to start to implement more of what we've seen work so well over there.

Russell Diez Canseco: And we want to be able to prove to our network of small family farmers the impact on them of the health of their birds and on their bottom lines before we ask them to sort of make that investment themselves. We're not in the habit of forcing additional capital expenditure on our farmers within the course of our working relationship. So that's one thing we get to do, which is we get to test and learn.

Speaker Change: and so there will be continued capex spent here

Thilo Wrede: And adjusted EBITDA of at least 75 million dollars or at least 55% growth compared to our previous expectation of at least 70 million dollars or at least 45%, and Paul Gross. Our Capix guidance remains unchanged at 35.5 million dollars. Our long-term guidance also remains unchanged. We are targeting $1 billion in net revenue by 2027, with a gross margin of at least 35% in an EBITDA margin of 12 to 14%. Our updated 2024 guidance reflects the strong performance in the second quarter in good visibility on demand and commodity prices for the second half of the year.

Thilo Wrede: But, as Russell said, it's another way for us to ensure that we have the supply. We did mention in the prepared remarks that we are now working with 350 family farms. So, since the beginning of the year, we have grown this by about 50 farms. We continue to have a very good pipeline of farmers, but we're also expanding into a new part of the country, right? And you don't have any farms in Indiana right now, and this will allow us to basically find the pump in Indiana for farms that we want to construct there. And so from our viewpoint, it's a great way to ensure that the supply for single once we need it will actually be in place already.

Russell Diez Canseco: And then and then the other thing is, as you well know, adding a farm is a long-term exercise. It takes as much as a year to go from deciding we want more eggs a year from now and actually having a new farmer with a farm that's operating and actually producing those eggs. And sometimes, you know, the year is one issue. But there's also variability, which is another issue. Because a lot of the upfront work of finding the right piece of land, getting financing from the bank, finding the right contractor to build the barn, getting in line for the import of equipment with sometimes disrupted ocean freight, et cetera, can create variability.

Speaker Change: but it's also said it's another way for us to ensure that we have the supply we did mention in the prepared remarks that we are not working with three hundred fifty family farm so since the beginning of the year we are thrown as by about fifty farms we continue to have a very good pipeline of farmers

Russell Diez Canseco: And one of the really exciting things about having a handful of these farms right where we want them in Indiana, near Seymour, is that when we're ready to have farmers producing eggs in Indiana, we have 10, say, more or less, farms ready to go, which frankly just puts a lot more accuracy in our estimate of the... So I think this is an exciting benefit for us and an exciting benefit for the farmers and, frankly, for the chickens.

Speaker Change: But we're also expanding into a new part of the country, right? You don't have any farms in Indiana right now, and this will allow us to basically prime the pump in Indiana for farms that we want to construct there.

Speaker Change: And so from our viewpoint, it's a great view, it's a great way to ensure that the supply for CIMO once we need it will actually be in place already.

Thilo Wrede: In parallel with our increased investment in our supply chain, we will continue to invest in marketing and expand our retail presence to drive awareness and deepen brand loyalty with our consumers. Given our outperformance versus our expectations in Q2, we now expect net revenue to be evenly split between the first and second half of the year. We were well about for our long-term 35% gross margin target in the first half of the year.

Thilo Wrede: Yeah, thanks, Russell. That was really helpful. Yeah, and then Thilo, any input on the level of investment beyond the $3 million would be great.

Ben Klieve: Got it, very good. All right, well, I appreciate you both elaborating on that. Congratulations again on the great quarter, and I'll get back and kill. Thanks.

Speaker Change: Got it. Very good. All right, well I appreciate you both elaborating on that. Congratulations again on a great quarter and I'll get back in queue.

Thilo Wrede: Yeah, as I said before, in the queue, I think we mentioned that for the next 12 months, we plan to spend $20 to $30 million on this. The $3 million so far was for land purchase; now we need to actually construct the barns and put the equipment into the barns, and so on.

Rob Moskow: Very next question comes from the line of Rob Moscow from Edie Collins. Please go ahead. Now I thanks, congratulations again. Russell and Tilo, I wanted to ask a little bit more for some color on how you're expanding the talent pool of the organization to handle all this growth. What kind of headcount increases are you putting in for things like sales, supply chain, logistics, marketing, you know, like running a billion-dollar business is a lot different than running a four hundred million-dollar business. So I wanted to hear about how you're prepping for that.

Benjamin Klieve: I would assume that we'll continue to invest in this approach past the next 12 months. And so there will be continued capex here. But as Russell said, right, it's another way for us to ensure that we have the X supply.

Ben Klieve: Thanks, Ben.

Speaker Change: Your next question comes from the line of Rob Moskow from Edekowin. Please go ahead.

Thilo Wrede: And we expect the second half of the year to continue this trend albeit to a lesser degree. We expect the adjusted EBITDA margin in the first half of the year to be higher than our adjusted EBITDA margin in the second half. The second half adjusted EBITDA margin outlook reflects our stepped up marketing investment in other investments in the future growth of vital farms. We continue to expect fiscal year 2024 capital expenditures and the range of 35 to 45 million dollars.

Speaker Change: now i thanks congratulations again

Rob Moskow: Russell and Thilo, I wanted to ask a little bit more for some color on how you're expanding the talent pool of the organization to handle all this growth.

Rob Moskow: What kind of headcount increases are you putting in for things like sales, supply chain?

Speaker Change: Logistics, Marketing,

Rob Moskow: You know, like running a billion dollar business is a lot different than running a $400 million business. So wanted to hear about how you're prepping for that. And then secondly, for the new facility in Seymour,

Thilo Wrede: This includes spending on our new facility and FEMA Indiana, the new farms that was mentioned and our ongoing digital transformation project. With the construction of the FEMA facility, we anticipate elevated cap expanding for the next few years with a bulk of the spending in 2025 and 2026. We intend to fund the FEMA facility and our other projects with existing cash and operating cash flow and we project that every dollar of CapEx investment in the new facility will generate more than $5 of annual revenue capacity, which we consider a very strong return. We continue to evaluate the monitor our capital allocation priorities and we will provide updates as necessary.

Russell Diez: And then, secondly, for the new facility in Seymour, is it pretty much like cut and paste? Like is the facility in Missouri, like what you've learned from that one? Is it pretty, is it going to be like very easy to set up a similar process in Indiana? Like because I've seen in startup companies that sometimes opening up a new production line can be kind of tricky based on all kinds of things that you didn't anticipate. Thanks Rob, good morning. Great questions, because I think it is so common for companies at our stage of growth, still in hyper-growth mode and looking ahead to a billion dollars and beyond.

Speaker Change: Is it pretty much like cut and paste, like is the facility in Missouri like what you've learned from that one?

Speaker Change: Is it pretty, is it going to be like very easy to set up a similar?

Speaker Change: Process in Indiana, because I've seen in startup companies that sometimes opening up a new production line can be kind of tricky based on

Speaker Change: all kinds of things that you didn't anticipate.

Benjamin Klieve: We did mention in the prepared remarks that we're now working with 350 family farms. So since the beginning of the year, we have grown this by about 50 farms. We continue to have a very good pipeline of farmers. But we're also expanding into a new part of the country, right? There aren't any; we don't have any farms in Indiana right now. And this will allow us to basically prime the pump in Indiana for farms that we want to construct there. And so from our viewpoint, it's a great idea; it's a great way to ensure that the supply for SEMO, once we need it, will actually be in place already. I got it. Very good

Thilo Wrede: Overall, our first half performance was strong and we are excited to build on this momentum for the rest of 2024 and beyond. We continue to add family farms at a great pace and we have big plans to break ground on our new facility next year. We remain focused on driving greater retail penetration and raising brand awareness to deliver our ex to more and more households for the each passing year. Thank you for your time and interest and by the firms today and for the confidence that you're placing us with your investment.

Speaker Change: Thanks, Rob. Good morning. Great questions, because I think it is so common for companies at our stage of growth.

Speaker Change: still in hyper growth mode and and looking ahead to a billion dollars and beyond. It's so common.

Russell Diez: It's so common for their top line to get ahead of their ability to service that top line. And you've known us for years now, and hopefully you've gotten used to my refrain about planning for our capacity and capability expansion well in advance of the need, so that we don't run into those somewhat predictable roadblocks that I believe predictable is preventable. So, for example, we've talked about the digital transformation effort that is currently underway to make sure that we have the right systems in place to scale from our current revenue level to a billion and beyond.

Speaker Change: for their top line to get ahead of their ability to service that top line. And you've known us for years now, and hopefully you've gotten used to my refrain about planning for our capacity and capability expansion.

Benjamin Klieve: Got it. Very good. All right. Well, I appreciate you both elaborating on that. Congratulations again on a great quarter, and I'll get back in queue.

Thilo Wrede: But sad, we will now be happy to take your questions. Thank you.

Rob Moskow: well in advance of the need so that we don't run into those somewhat predictable roadblocks that I believe predictable is preventable.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and listening via loudspeaker on your device, please speak up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue.

Operator: Your next question comes from the line of Rob Moskow from ED Cowen. Please go ahead.

Speaker Change: So, for example, we've talked about the digital transformation effort that is currently underway to make sure that we have the right systems in place to scale from our current revenue level to a billion and beyond.

Robert Moskow: Hi, thanks. Congratulations again.

Russell Diez: When it comes to adding talent, one of the really cool things about Vital Farms is we really do have, and a lot of people say it, we really do have a pretty darn distinct culture, and we attract really outstanding crew members in every function. And in my experience, other great people like to work with teams of great people. And so we don't struggle to hire, and we're very thoughtful in the short and long run about making sure we have a talent roadmap in order to make sure that we're well ahead of the advance of the business.

Speaker Change: When it comes to adding talent, one of the really cool things about Vital Farms is we really do have, I know a lot of people say it, we really do have a pretty darn distinct culture and we attract really outstanding crew members in every function.

Ryan Holland: And your first question comes from the line of Ryan Holland of DA Davis. Please go ahead. Yeah, thanks.

Speaker Change: and, in my experience,

Speaker Change: Other great people like to work with teams of great people.

Thilo Wrede: Good morning. I wanted to ask first about the implied, you know, step down in margin the second half and the first half, which, you know, looks like it's going from high teens to high single digits. Obviously, Thilo, I think you laid out a lot of it, but just maybe want to get a better sense for how much the marketing investment is going to be out maybe in the year and in the second half.

Speaker Change: And so, we are, we don't...

Speaker Change: struggle to hire, and we're very thoughtful in the short and long run about making sure we have a talent roadmap in order to make sure that we're well ahead of the demands of the business.

Russell Diez: As for the actual numbers that we're planning, you know, I don't think we've sort of guided to that. Maybe Tilo has some insights that he wants to share, but my commitment to you is that, frankly, a big part of my job is simply, after setting the strategy, ensuring that we have all the resources we need to execute really well. Okay. Thanks.

Speaker Change: As for the actual numbers that we're planning, you know, I don't think we've sort of guided to that. Maybe Thilo has some insights that he wants to share, but my commitment to you is that

Robert Moskow: Russell and Thilo, I wanted to ask a little bit more about how you're expanding the talent pool of the organization to handle all this growth. What kind of headcount increases are you putting in for things like sales, supply chain, logistics, and marketing? You know, running a billion-dollar business is a lot different than running a $400 million business.

Thilo Wrede: And kind of where that would put you on a relative basis to sales on an annualized basis. And maybe where you see that going forward versus where you've kind of been historically. Yeah, a great question, Brian. Good morning. The marketing investments of last year, we did something similar where we concentrated marketing investments, second and half of the year. This year, we're planning an even bigger, bending on marketing investment, second half of the years, a cent of net sales.

Thilo: Frankly, a big part of my job is simply, after setting the strategy, is ensuring that we have all the resources we need to execute really well.

Russell Diez Canseco: So I wanted to hear about how you're preparing for that. And then, secondly, for the new facility in Seymour, is it pretty much like cut and paste? Like, is the facility in Missouri similar to what you've learned from that one? Is it going to be very easy to set up a similar process in Indiana? Because I've seen in startup companies that sometimes opening up a new production line can be kind of tricky based on all kinds of things that you didn't anticipate. So that's the question.

Russell Diez: And just in terms of like the facility itself that you're building, like, is every egg washing facility the same, or are there differences? Oh, no, put this one in place. If you've seen our facility, you'll know not every egg washing facility is the same. But what's cool about theme, or is it is advantage because it benefits from the learnings of working for seven years in Springfield. And so, yeah, the basic operation, the washing, inspecting, and packing of eggs is the same. The machine will be from the same manufacturer. We're well familiar with it. We've got the advantage of the ability to train up the entire new crew in our currently operating facility over time.

Speaker Change: Okay.

Thilo: Thanks, and just in terms of like the the facility itself that you're building, like is every is every egg washing facility the same or are there differences? Oh no, if you've seen our facility you'll know not every egg-washing facility is the same.

Speaker Change: But what's cool about Seymour is it is advantaged because it benefits from the learnings of working for seven years in Springfield.

Thilo Wrede: And it's simply driven by the fact that we have this upside in the first half versus our own chance. So we are, we have, we have better profitability, first half, and what we have expected when we plan for the year. And while we have to let some of that flow to the bottom line, we also want to make sure that we make the appropriate reinvestments while we can to ensure that the growth continues and, and we continue delivering the upside that we have.

Speaker Change: And so, yeah, the basic operation, the washing, inspecting, and packing of eggs is the same. The machine will be from the same manufacturer, we're well familiar with it.

Thilo: We've got the advantage of the ability to train up the entire new crew in our currently operating facility over time, and our Vice President of Operations, who's deeply embedded in Springfield today, is also the person overseeing the construction and standing up of the new facility.

Russell Diez: And our vice president of operations, who's deeply embedded in Springfield today, is also the person overseeing the construction and standing up of the new facility. So we feel great about continuity. We feel great about our understanding how to run one of these places really well. And of course, the startup never goes perfectly as planned, but this is about as close to what we're already doing as I can imagine.

Thilo Wrede: And what I mentioned on the call that we, we've started this new advertising program around women's boards, how it connects to female farmers that we work with. There's a huge opportunity for us there. I think the viewership of women's boards is up meaningfully over time. And given the, the profit upside from the first half, we just figure there's no opportunity for us here to continue building awareness and going out for the house of penetration that we have.

Speaker Change: So, we feel great about continuity. We feel great about our understanding how to run one of these places really well. And of course, a startup never goes perfectly as planned, but this is about as close to what we're already doing as I can imagine.

Russell Diez: Okay, great. Thank you.

Russell Diez Canseco: Thanks, Rob. Good morning.

Speaker Change: Okay, great. All right, thank you.

John Andersen: Your next question comes from the line up, John Andersen of William Blair. Please go ahead. Hey, morning everybody. Congratulations. Thank you. My question just one, but I guess a two-parter. One of the questions I get as most frequently is kind of sustainable competitive advantage or moat in the egg business. I think investors, some investors, have a hard time getting their arms around that. And what I'd love to hear, your kind of refreshes on is thinking around both your brand and supply chain. Because it seems to me that the brand and your relationship with retailers and perhaps ability to have a greater influence and inform kind of the shelf in this category is part of the barrier or the moat.

Russell Diez Canseco: Great questions, because I think it is so common for companies at our stage of growth, still in hyper-growth mode, and looking ahead to a billion dollars and beyond. It's so common for their top line to get ahead of their ability to service that top line. And you've known us for years now, and hopefully, you've gotten used to my refrain about planning for our capacity and capability expansion well in advance of the need so that we don't run into those somewhat predictable roadblocks that I believe are preventable.

Thilo Wrede: Last year, we spent, you know, roughly, roughly 5% of our own sales on marketing spending. I would expect a small increase relative to that level this year. And long term, I think in the 5% to 6% range is probably the right range for us right now. But we'll, you know, we'll continue to evaluate that as we continue to grow.

Thilo: thanks

Speaker Change: Your next question comes from the line of Jon Andersen of William Blair. Please go ahead.

Russell Diez Canseco: So, for example, we've talked about the digital transformation effort that is currently underway to make sure that we have the right systems in place to scale from our current revenue level to a billion and beyond. When it comes to adding talent, one of the really cool things about Vital Farms is that we really do have, I know a lot of people say it, we really do have a pretty darn distinct culture. And we attract really outstanding crew members in every function.

Russell Diez Canseco: And in my experience, other great people like to work with teams of great people. And so we don't struggle to hire, and we're very thoughtful in the short and long run about making sure that we have a talent roadmap in order to make sure that we're well ahead of the demands of the business. As for the actual numbers that we're planning, I don't think we've sort of guided to that. Maybe Tilo has some insights that he wants to share. But my commitment to you is that, frankly, a big part of my job is simply ensuring that we have all the resources we need to execute.

Jon Andersen: Hey, good morning, everybody. Congratulations.

Thilo Wrede: Appreciate the color.

Jon Andersen: Thank you. My question, just one, but I guess a two-parter.

Unknown Speaker: One of the questions I get asked most frequently is about the ag business. I think investors have a hard time getting their arms around that. And, you know, what I'd love to hear your kind of refresh on is thinking around both your brand and supply chain, because it seems to me

Russell Diez Canseco: Thanks. And just in terms of the facility itself that you're building, like, is every egg washing facility the same, or are there differences when you put this one in place? Oh, no.

Russell Diez Canseco: If you've seen our facility, you'll know not every egg washing facility is the same. But what's cool about FEMUR is it benefits from the learnings of working for seven years in Springfield. And so, yeah, the basic operation, the washing, inspecting, and packing of eggs is the same. The machines will be from the same manufacturer.

Russell Diez Canseco: We're well familiar with it, and we've got the advantage of the ability to train up the entire new crew in our currently operating facility over time. And our vice president of operations, who's deeply embedded in Springfield today, is also the person overseeing the construction and opening of the new facility. So, we feel great about continuity. We feel great about our understanding of how to run one of these places really well. And, of course, a startup never goes perfectly as planned, but this is about as close to what we're already doing. It's like, Okay, great. All right. Thank you.

Speaker Change: One of the questions I get asked most frequently is...

Operator: Your next question comes from the line of Jon Andersen of William Blair. Please go ahead.

Speaker Change: kind of sustainable competitive advantage or moat.

Speaker Change: In the ag business, I think investors, some investors have a hard time getting their arms around that. And, you know, what I'd love to hear you kind of refresh us on is thinking around both your brand and supply chain. Because it seems to me...

Ryan Holland: And then just switching gears to the new egg washing facility. Can you just for investors and also appreciated the update on on Springfield going from 700 million to 800 million. But just within the context of a $1 billion revenue target by 2027.

Speaker Change: that, you know, the brand.

Speaker Change: and your relationships with retailers and perhaps ability to have a greater influence and inform.

Ryan Holland: Just help us understand the bridge from onboarding that facility and ramping that up. How that plays into the billion dollars if, you know, what other considerations or flexibility do you have to make sure that you're from a distribution capacity standpoint supporting that. And then maybe Teelo just in that context, just any thoughts on kind of the cat backs components between now and starting up that facility. Thanks, Brian.

Speaker Change: kind of the shelf in this category is part of the barrier, the moat, and then the supply chain in terms of your relationships with farmers, the farmer economics.

John Andersen: And then the supply chain in terms of your relationships with farmers, the farmer economics. But he could tell a little bit from your perspective at what constitutes the moat that would be very helpful. Thanks, John. Very fair question. And one that, you know, we're not unfamiliar with. If you'd asked me that question three years ago, I would have somewhat flippantly said there is no moat. And arguably, there isn't one around the production of eggs. But what there is a moat around is what we think we're really differentiating. And that is selling food with a level of transparency and with a level of trust in the way we do that.

Speaker Change: But if you could tell us a little bit from your perspective that, you know, what constitutes the moat, that would be very helpful.

Speaker Change: Thanks, Jon. A very fair question and one that, you know, we're not unfamiliar with. If you'd asked me that question three years ago, I would have somewhat flippantly said, there is no moat, and arguably there isn't one around the production of eggs.

Russell Diez: Good to be with you today. So, as you have learned over time, we're very intentional and planned very well in advance to make sure that we don't face the common constraints on growth here at a fast growing company. For example, we started the site selection for this plan about two years ago and made this announcement just in the last quarter, and that's well in advance of us opening the facility. Now, we believe that we will have that facility up and running by the end of 2026 or the beginning of 2027, and that that will be well timed with our hitting our capacity in Springfield and needing to add capacity.

Speaker Change: But what there is a moat around is what we think we're really differentiating, and that is selling food with a level of transparency and with a level of trust in the way we do that. That's hard to come by in this country.

Russell Diez: That's hard to come by in this country. And so, and the way I would maybe prove that assertion, or at least some evidence that I think indicates it, is in our top 10 customers, we're not the only brand of pasteurized eggs on the shelf. And if you believe that's a commodity in need of a moat, interestingly, we have the highest price version of that kind of egg. And yet we're growing the fastest and have the highest market share year after year after year. And so, you have to begin to wonder: are we selling a commodity egg inefficiently, or are we perhaps doing something more than that?

Speaker Change: And so, and the way I would maybe prove that assertion, or at least some evidence that I think indicates it, is in our top 10 customers,

Speaker Change: We're not the only brand of pasture-raised eggs on the shelf, and if you believe that's a commodity in need of a moat, interestingly, we have the highest-priced version of that kind of egg.

Russell Diez: There are other levers that we can pull for short periods of time. In case, for example, we have a big uptight surprise and volume. There's more space in Springfield that we could potentially leverage to temporarily add capacity if that became necessary. But we've been very deliberate in our growth and we feel pretty confident about the projections we're using that led us to the time you see more. And Brian, on your CapEx question, the cross-full in the Springfield facility, we haven't fully talked about it, as I think we've talked about.

Speaker Change: and yet we're growing the fastest and have the highest market share year after year after a year and so you have to begin to wonder are we selling a commodity egg inefficiently or are we perhaps doing something more than that and you mentioned brand

Russell Diez: And you mentioned brand. It is absolutely my assertion that we have a brand that actually creates value for consumers. It's not just a pile of advertising on a commodity. We bring consumers and retailers into what we're doing and how we're doing it in a way that's fun and educational in a confusing segment of the grocery store, but also in a way that helps them understand how thoughtful and careful we are with all the details. So, that would be my first spot, that the moat is a way of operating, and the way that you can maybe quantify that is around the brand and the value of the brand.

Speaker Change: It is absolutely my assertion that we have a brand that actually creates value for consumers.

Speaker Change: It's not just a pile of advertising on a commodity.

Speaker Change: We bring consumers and retailers into what we're doing and how we're doing it in a way that's fun and educational in a confusing segment of the grocery store, but also in a way that helps them understand how thoughtful and careful we are with all the details.

Russell Diez: The revenue capacity that the new SEMA facility brings us, and that we think for every dollar of CapEx that we put in, we get five dollars of revenue out of it, that CapEx will be spent in 25 and 26th, the vast majority of it. Simply, we've stopped writing ground for about next year, and that's when the spending really starts. Russell and the Preparatory Marks had talked about the starter farms that we are now starting to plan for as well.

Speaker Change: So that would be my first thought, that the moat is a way of operating and the way that you can maybe quantify that is around the brand and the value of the brand.

Russell Diez: You can see it in gross margins, and you can see it in revenue growth. You also mentioned our network of farms, and we have invested very thoughtfully and perhaps in an outsized way over a lot of years to develop what I believe is the network of the best farmers in this country. I think we've got really great farmers, and they stay with us, and we spend a lot of time and energy with them, helping them be successful, and helping bring them the kind of education and resources that they ask us for. Because that's something that scales really well.

Russell Diez: With the clients on land there, there will be additional CapEx that goes into those starter farms as well. I think of the 10Q, we talked about 20 to 30 million dollars of CapEx over the next 12 months, and we'll probably continue to make progress on these starter farms beyond those 12 months. So for the next two years, we'll have elevated CapEx spent, elevated compared to our guides for this year as well.

Speaker Change: you can see it in gross margins and you can see it in revenue growth

Speaker Change: You also mentioned our network of farms, and we have invested.

Speaker Change: very thoughtfully and perhaps in an outsized way over a lot of years.

Speaker Change: to develop.

Speaker Change: But what I believe is the network of the best

Speaker Change: I think we've got really great farmers, and they stay with us, and we spend a lot of time

Speaker Change: and energy with them, helping them be successful and helping bring them the kind of education and resources that they ask us for. Because that's something that scales really well. You can hire one expert veterinarian to speak to a whole group of farmers rather than leaving that to them, for example.

Russell Diez: You can hire one expert veterinarian to speak to a whole group of farmers rather than leaving that to them. for example. So that's a very hard thing to replicate. And I would have said two years ago, well, gosh, anybody could go, you know, could go partner with some small family farmers if they wanted to introduce a product line called Pasteurized eggs. But increasingly, what we're finding is that part of our accelerating and superior growth versus other branded and non-branded versions of the commodity we produce is that we're just a little bit better. I think, at growing our supply in line with our business plans and attracting and retaining great farmers.

Russell Diez: But right now, we feel very good that we can fund all of that out of operating cash flow, and don't forget, we have 153 million dollars of cash on the balance sheet, so we have a very, very healthy cash cushion right now.

Speaker Change: So that's a very hard thing to replicate. And I would have said two years ago, well, gosh, anybody could go.

Ryan Holland: Great.

Unknown Executive: We'll leave it there.

Unknown Executive: Thank you.

Speaker Change: So, you know, could go partner with some small family farmers if they wanted to introduce a product line called Pasteurized Eggs.

Rob Dekersen: During next question, Combs, from the line of Rob Dekersen of Jeffries. Please go ahead. Great. Thanks so much. Good morning, guys.

Unknown Speaker: But increasingly, what we're finding is that part of our accelerating and superior growth versus other branded and unbranded versions of the commodity we produce.

Speaker Change: But increasingly what we're finding is that part of our accelerating and superior growth versus other branded and non-branded versions of the commodity we produce

Russell Diez: I guess just first question, is let's say what's the primary or what was the primary driver of the nice volume performance in the quarter, even relative to your solid expectations coming out of Q1, right? It seems like there was this bump, so clearly the question now as well, if there's increased distribution, the velocities are great and demand is driving distribution, distribution is driving demand. Then why couldn't we see a little bit more of that kind of ongoing upside as we get through at least Q3?

Speaker Change: is that we're just a little bit better, I think, at growing our supply in line with our business plans and attracting and retaining great farmers. And it turns out that, you know, farmers have long memories and they know how you treated them last year.

Russell Diez: And it turns out that, you know, farmers have a long memory, and they know how you treated them last year, and they know what you did when times were tough, and they know what you did when you didn't have to do it. And that's a very rare thing in agriculture in this country to actually treat farmers the way they deserve to be treated. But we do that. And that means we have the right to grow our network in a way that maybe some others don't.

Speaker Change: And they know what you did when times were tough, and they know what you did when you didn't have to do it. And that's a very rare thing in agriculture in this country, to actually treat farmers the way they deserve to be treated. But we do that. And that means we have the right to grow our network in a way that maybe some others don't.

Russell Diez: Thanks. Yeah, great question about this morning. I think on the first quarter call, three months ago, we talked about how first quarter was just having an also under its easiest, what's operating really well, consumer demand was strong. And I think second quarter, we saw a continuation of that theme, you know, this rich cycle that Russell has mentioned and they'll prepare remarks about distribution driving demands and demand driving distribution that continuous ECS continues to operate really well.

John Andersen: Great, thank you. Thanks so much.

Speaker Change: Great, thank you.

Matt Smith: Your next question comes from the line of Matt Smith from Stiefel. Please go ahead. Hi, good morning. Thilo, I wanted to come back to the second half expectations. Top line looks like it's expected to grow about 20 percent, including the headwind from lapping the extra week.

Speaker Change: Thanks, y'all.

Speaker Change: Your next question comes from the line of Matt Smith from Stifel. Please go ahead.

Thilo Wrede: Hi Thilo, I wanted to come back to the second half expectations. Top line looks like it's expected to grow about 20%, including the headwind from lapping the extra week. Is there anything you'd call out in terms of

Jon Andersen: Good morning, everybody. Congratulations. Thank you.

Matt Smith: Hi, good morning. Thilo, I wanted to come back to the second half expectations. Top line looks like it's expected to grow about 20%, including the headwind from lapping the extra week. Is there anything you'd call out in terms of

Matt Smith: Is there anything you'd call out in terms of the timing of your expectations for distribution gain, shelf reset, promotional events, or any unique comparisons to the prior year we should keep in mind as we phase the growth across the third and fourth quarter? Good morning, Matt. Good question. You know, we've laid out the puts and takes for the year. I think we talked about it at the beginning of the year. We had a lot more puts and takes for a couple of the year than second half. Really, for the second half, the biggest piece of human mind is the 53rd week that we had last year.

Speaker Change: The timing of your expectations for distribution gains, shelf resets, promotional events, or any unique comparisons to the prior year, we should keep in mind as we phase the growth across the third and fourth quarter.

Russell Diez: So it's really this virtual cycle that we've talked about, it continues to manifest itself. For the back half of the year, you know, we assume that at some point in terms of ECS operating efficiency will we will regress to a mean. This very smooth operation that we had in the first half of the year, we got necessarily expected to continue in perpetuity. At some point, the machine will, you know, break down unexpectedly and then we'll have to fix it and do some maintenance outside of the plan cycle.

Jon Andersen: My question, just one, but I guess a two-parter. One of the questions I get asked most frequently is what kind of sustainable competitive advantage or moat is in the ag business. I think investors, some investors have a hard time getting their arms around that. And, you know, what I'd love to hear your kind of refresh us on is thinking around both your brand and your supply chain, because it seems to me that, you know, the brand.

Jon Andersen: And your relationships with retailers and perhaps ability to have a greater influence and inform kind of shelf in this category is part of the barrier, the moat, and then the supply chain in terms of your relationships with farmers, the farmer economy. But if you could tell us a little bit from your perspective about what constitutes the moat, that would be very helpful.

Thilo: Good morning, Matt. Good question. You know, we've laid out the puts and takes for the year, you know, I think we talked about it at the beginning of the year. We had

Russell Diez Canseco: Thanks, Jon.

Russell Diez Canseco: Thanks, Jon. A very fair question and one that, you know, we're not unfamiliar with. If you'd asked me that question three years ago, I would have somewhat flippantly said, "There is no moat. And arguably, there isn't one around the production of eggs." But what there is a moat around is what we think we're really differentiating, and that is selling food with a level of transparency and with a level of trust in the way we do that.

Russell Diez Canseco: That's hard to come by in the, And so, and the way I would maybe prove that assertion, or at least some evidence that I think indicates it, is that in our top 10 customers, we're not the only brand of pasture-raised eggs on the shelf. And if you believe that's a commodity in need of a moat, interestingly, we have the highest-priced version of that kind of thing. And yet we're growing the fastest and have the highest market share year after year after year. And so you have to begin to wonder, are we selling a commodity egg inefficiently, or are we perhaps doing something more than that? And you mentioned the brand.

Russell Diez Canseco: It is absolutely my assertion that we have a brand that actually creates value for consumers. It's not just a pile of advertising on a commodity. We bring consumers and retailers into what we're doing and how we're doing it in a way that's fun and educational in a confusing segment of the grocery store, but also in a way that helps them understand how thoughtful and careful we are with all the details. So, that would be my first thought, that the moat is a way of operating, and the way that you can maybe quantify that is around the brand and the value of the brand. You can see it in gross margins, and you can see it in revenue growth.

Russell Diez Canseco: You also mentioned our network of farms, and we have invested very thoughtfully, and perhaps in an outsized way over a lot of years, to develop what I believe is the network of the best farmers in this country. I think we've got really great farmers, and they stay with us. We spend a lot of time and energy with them, helping them be successful, and helping bring them the kind of education and resources that they ask us for, because that's something that scales really well.

Russell Diez Canseco: You can hire one expert veterinarian to speak to a whole group of farmers rather than leave. So that's a very hard thing to replicate. And I would have said two years ago, well, gosh, anybody, you know, could go partner with some small family farmers if they wanted to introduce a product line called Pasteurized.

Russell Diez Canseco: But increasingly, what we're finding is that part of our accelerating and superior growth versus other branded and non-branded versions of the commodity we produce is that we're just a little bit better, I think, at growing our supply in line with our business plans and attracting and retaining great farmers. And it turns out that, you know, farmers have long memories, and they know how you treated them last year. And they know what you did when times were tough, and they know what you did when you didn't have to do it.

Russell Diez Canseco: And that's a very rare thing in agriculture in this country to actually treat farmers the way they deserve to be treated. But we do that. And that means we have the right to grow our network in a way that maybe some others don't.

Thilo: We had a lot more puts and takes first half of the year than second half. Really for the second half, the biggest piece to keep in mind is the 53rd week that we had last year.

Thilo Wrede: Other than that, you know, we mentioned our TDP gains and the prepared remarks. I think you can. We've talked about the items; you know, number of skews on shelf in the prepared remarks. So it's not so much about, there's going to be a stay X when shelf resets happening all of a sudden, all of a TDP's jump up. It's an ongoing, continuous process, right? I think we've had TDP gains in X pretty much every month or year. If you don't get overall scan data for us, it might look a bit different because we have year-over-year distributional system butter that we're hoping to capture back in the second half of the year.

Thilo: Other than that, you know, we mentioned our TDP gains and the prepared remarks.

Russell Diez: And so our guidance reflects that ECS at some point will probably run into some hiccups that we just didn't see in the first half. And so we just want to make sure we don't get ahead of our skis there. Consumer demand for us continues to be strong, right? You publish Nielsen reports every two weeks, you see the scanner data that continues to be strong. But it is more our own cautiousness to make sure that we don't run into a situation where we promise something. And then we run into an unfortunate issue at ECS that will prevent us from delivering on that.

Thilo Wrede: I think you can, we talked about the items, you know, the number of SKUs on the shelf in the pre-prep remarks. So, it's not so much about there's going to be this day X when shelf resets happen, and all of a sudden, our TDPs jump up. It's an ongoing, continuous process, right? I think we've had TDP gains in X pretty much every month or year. If you look at overall scanner data for us, it might look a bit different because we have year-over-year distribution losses in butter that we're hoping to recover in the second half of the year.

Thilo: I think you can...

Thilo: We've talked about the items, you know, number of skews on shelves in the prepared remarks.

Speaker Change: it's not so much about there's going to be the day ext l shelfy hasts happened in all ofa sudden ottdpiece jump out it's

Russell Diez: Okay, very clear. Prudent's good.

Thilo: It's an ongoing, continuous process. I think we've had TDP gains in eggs pretty much every month of the year.

Thilo: If you look at overall scanner data for us, it might look a bit different because we are year-over-year distribution losses in butter that we're hoping to capture back in the second half of the year.

Thilo Wrede: But it's really an ongoing process that we'll build on itself month after month rather than a particular date when everything will change. So the growth over the second half of the year don't expect that there's going to be some major inflection point there. It's really an ongoing process. And the 53rd week is that one big, big, uh...

Thilo Wrede: But it's really an ongoing process that will build on itself month after month rather than Don't, don't expect that there's going to be some major inflection point there. It's really an ongoing process, and the 53rd week is that one big, big

Russell Diez: And then I guess just another kind of more technical P&L question. You know, Q1, the gross margin was great. Q2, the gross margin was great. And I think kind of as you, you know, put up at least the Q1 number, right? There's kind of walking everybody back a little bit just with respect to, you know, kind of go forward, run rate, you know, you've never really spoken to the business kind of getting into the high 30% gross margin and totally understand that.

Thilo: But it's really an ongoing process that will build on itself, month after month, rather than one particular date when everything will change.

Thilo: The growth over the second half of the year, don't expect that there's going to be some major inflection point there. It's really an ongoing process and the 53rd week is that one big, big...

Thilo Wrede: and even out there laughing that one that will reduce fourth quarter growth relative to a third quarter growth probably. Thank you for that. Just as a follow-up, you talked about reinvesting some of the first half upside to sustain and feed the virtuous cycle through increasing marketing, even above where you expected it to increase for the year. Are you also leaning more heavily into promotions behind the egg business to drive additional consumer trial and consumer household penetration, or is that upside being focused into marketing investments and less so on the promotion side? And I'll leave it there.

Russell Diez: And I totally understand a lot of the stars that have aligned in the first half. All that said, you know, I feel like part of the kind of conservatism as you got, you know, where you think through the year was also just around feed cost and input cost. And where we sit today, they're actually, you know, better than they were a few months ago. If I'm thinking more corn, corn soybean, so maybe just, you know, a couple comments as to, you know, the why, you know, you couldn't potentially do a gross margin and even Q3, you know, that's similar to Q2.

Thilo: Event out there, lapping that one, that will reduce fourth quarter growth relative to third quarter growth probably.

Speaker Change: thank you for them just as as a follow-up you talked about reinvesting some of the

Speaker Change: first half upside to sustain and feed the virtuous cycle through increasing marketing, even above where you expected it to increase for the year. Are you also leaning more heavily into

Speaker Change: promotions behind the egg business to drive additional consumer trial and consumer or household penetration or is that upside being

Russell Diez: Maybe. That's all. Thanks, guys. Yeah, no, good question. Look, when we look at commodity costs in my estimation, Q2 was probably the biggest deal with your benefit and follow commodity costs. So the margin benefit that we get from that, we probably peaked in Q2. And look, I'm not in the business of 4,000 commodity costs, right? If they keep moving around, who knows what happens to us of the year, we have visibility into the cost that we have in Q3, we have a bit of visibility into Q4, based on that, I would assume that Q2 was the best year of a year comparison.

Speaker Change: focus into marketing investments and less so on the promotion side and I'll leave it there. Thank you.

Thilo Wrede: Thank you. Yeah, so the reinvestment is really into marketing, spending, and capabilities. We did increase promotions and for some of the year relative to last year, simply because last year we didn't spend; we really couldn't spend because of the dislocations on shelves because of avian influenza, right? There was no point in us subsidizing existing sales. And so we pulled back on trade promotions; we put that back on. So this year, the second half of the year trade promotions are at the previously planned levels, I would say. So the investment goes to marketing, and it goes to capability building, right?

Speaker Change: Yeah, so the reinvestment is really into marketing, spending, and capabilities.

Speaker Change: We did increase promotions in the first half of the year relative to last year, simply because last year we didn't.

Speaker Change: We really couldn't spend because of the dislocations on shelves because of avian influenza, right? There was no point in us subsidizing existing sales. And so we pulled back on trade promotions, we put that back on.

Speaker Change: first half of this year, second half of the year, trade promotions are at the previously planned levels, I would say.

Russell Diez: We talked in the prepared remarks about the other business starting to grow again, that we'll put pressure on growth margin. We just a bit of maintenance that we need to do with ECS, that will flow through parks, that will hit growth margin. So that is why we are saying that we still assume that fully year will be, for the back half of the year, will be about our long-term guidance, just not to the same degree that we have in the first half of the year. Okay, sounds great. Good job, guys. Thanks.

Speaker Change: So the investment goes to marketing and it goes to capability building, right? One of your peers had asked a question about investments in headcount, for example. We have the ability to maybe accelerate some headcount growth.

Thilo Wrede: One of the appears to ask the question about investments in headcount. For example, we have the ability to maybe accelerate some headcount growth. In order to get capabilities in house that we are planning for to get them in house next year. So we're bringing them in now because we can, because we can, we're able to afford it and it actually allows us to get ahead of our plan growth curve, curve already. This is not about promotion spending, right? Our promotion spend is to drive trial in order to then convert trial into repeat spend or repeat purchases and drive also penetration that way.

Speaker Change: In order to get capabilities in-house that we have planned for to get them in-house next year. So we are bringing them in now.

Speaker Change: Because we can. Because we are able to afford it, and it actually allows us to get ahead of our plant growth curve already. This is not about...

Ben Klieve: Your next question comes from the line-up Ben Clive from Lake Street. Please go ahead. All right, thanks for taking my questions.

Ben Klieve: Congratulations on another nice quarter here. In question about the initiative you have around Seymour, Russell, you talked about purchasing land for R&D Farms, and it sounds like a bit of a BD tool. I'm curious if one you could comment on the degree to which $3 million you've invested into this initiative so far represents the bulk of this initiative or if that's going to expand in any material fashion. And then if you could characterize this initiative between this R&D farm versus a longer-term business development tool, we would be curious about both of those classes.

Speaker Change: And I'm going to be talking about promotion spending. Our promotion spend is to drive trial in order to then convert trial into repeat spend or repeat purchases and drive household penetration that way. That's a plan that...

Thilo Wrede: That's a plan that we build well in advance, and that's not something that we change on the dime if we don't have to. So it's really about capability building that.

Speaker Change: that we we build well in advance and that's not something that we we change on the dime if we don't have to so it's really about capability building that.

Unknown Speaker: If we don't have to, so it's really about capability building.

Russell Diez: And one thing I'd add to Tilo's excellent remarks on that topic is that we, just in case it wasn't obvious, we don't use promotions to rent market share. And I'm stealing that quote from our sales leader, Pete Pappas. That's not how we grow this business.

Russell Diez Canseco: And one thing I'd add to Thilo's excellent remarks on that topic is that we, just in case it wasn't obvious, we don't use promotions to rent market share. And I'm stealing that quote from our sales leader, Pete Pappas.

Speaker Change: And one thing I'd add to Thilo's excellent remarks on that topic.

Speaker Change: is that we, just in case it wasn't obvious, we don't use promotions to rent market share. And I'm stealing that quote from our sales leader, Pete Pappas.

Ben Klieve: Good morning, Ben. Thanks for being with us and I appreciate the questions. Yeah, I'm really excited about this initiative. So I'll talk a little bit about the purpose and the goals, and then I'll tell you what you can talk about kind of the capital expenditure, you know, map road map. As we said in the remarks, there are two things that I believe will be meaningful to vital farms and all of our stakeholders coming out of this initiative.

Speaker Change: That's not how we grow this business.

Speaker Change: Okay, your next question comes from the line of Adam Samuelson of Goldman Sachs.

Adam Samuelson: Okay, your next question comes from the light of Adam Sandelson of Goldman Sachs. Please go ahead. Yes, thank you. Good morning, everyone. So I guess my first question is maybe coming back to the gross margins in the first in the second quarter and really the first half. And maybe take it from the lens of kind of the supply planning point that you made earlier, Russell. You have to make your own internal supply decisions or how many eggs you have from your farm's year plus in advance. Your volumes in the first half of the year have been.

Operator: Okay, your next question comes from the line of Adam Samuelson of Goldman Sachs. Please go ahead.

Operator: Your next question comes from the line of Matt Smith from Stifel. Please go ahead.

Adam Samuelson: Yes, thank you. Good morning, everyone.

Matt Smith: Hi, good morning Thilo. I wanted to come back to the second half expectations. The top line looks like it's expected to grow about 20%, including the headwind from lapping the extra week. Is there anything you'd call out in terms of the timing of your expectations for distribution gains, shelf resets, promotional events, or any unique comparisons to the prior year we should keep in mind as we phase the growth across the third and fourth quarter?

Speaker Change: Please go ahead.

Russell Diez Canseco: So I guess my first question is maybe to come back to the gross margins in the second quarter and really the first half and want to maybe take it from the lens of kind of the supply planning point that you made earlier, Russell. You have to make your own internal supply decisions for how many eggs you will have from your farms a year plus in advance. Your volumes in the first half of the year have been very, very good and above the level at which you'd kind of expect

Adam Samuelson: Yes, thank you. Good morning, everyone.

Ben Klieve: The first is that we still have a lot of innovation to try and to incorporate. You know, we've been traveling to Europe almost annually for 10 years, and they've been doing things the way we do it for a lot longer. And every time we go there, we learn and we get new ideas and we hear from them what's working. And you know, you can't do everything at once. We want to start to implement more of what we've seen works so well over there.

Adam Samuelson: So I guess my first question is maybe coming back to the gross margins in the second quarter and really the first half, and I want to maybe take it from the lens of kind of the supply planning point that you made earlier, Russell. You have to make your own internal supply decisions for how many eggs you have from your farms.

Speaker Change: Thank you all for joining us.

Adam Samuelson: and have been very, very good. And above the level at which you kind of, I think, assume long-term revenue growth. So the question is how much, you know, is there a benefit in the first half gross margins from just utilizing more of that kind of surge kind of internal egg production that's ending up in a pasture-raised branded form versus having to get sold into other channels. And that's helped your overall gross margins. So there's some upside to fixed cost absorption and Egg Central Station. And as well, relatedly, how much has kind of increases in elevated commodity egg prices and egg product prices, especially in the second quarter versus last year, how much if it all that help the results.

Ben Klieve: And we want to be able to prove to our network of small family farmers the impact on them, on the health of their birds and on their bottom lines before we ask them to sort of make that investment themselves. We're not in the habit of forcing additional cat-backs on our farmers within the course of our working relationship. So that's one, which is we get to test and learn. And then the other is, as you well know, adding a farm is a long lead time exercise.

Speaker Change: I think, assume long-term revenue growth.

Speaker Change: So the question is how much, is there a benefit in the first half gross margins from just

Speaker Change: utilizing more of that kind of surge kind of

Speaker Change: Internal egg production that's ending up in a pasture-raised branded form versus having to get sold into other channels and that's helped.

Ben Klieve: It takes as much as a year to go from deciding we want more eggs a year from now, and actually having a new farmer with a farm that's operating and actually producing those eggs. And sometimes, you know, the year is one. Thank you. But there's also variability, which is another issue because a lot of the upfront work of finding the right piece of land, getting financing from the bank, finding the right contractor to build the barn, getting in line for the import of equipment with sometimes disrupted ocean freight, et cetera, can create variability.

Speaker Change: Your overall gross margins, assume also there's some upside to fixed costs absorption and in ex-central station, and as well, relatedly, how much has kind of increases in elevated

Ben Klieve: And one of the really exciting things about having a handful of these farms right where we want them in Indiana near Seymour, is that when we're ready to have farmers producing eggs in Indiana, we have 10 say more or less farms ready to go, which frankly just puts a lot more accuracy on our estimate of the time frame. So I think this is an exciting benefit for us and an exciting benefit for the farmers and frankly for the chickens.

Speaker Change: Commodity egg prices and egg product prices, especially in the second quarter versus last year, how much, if at all, did that help the results?

Thilo Wrede: Thanks, Adam. Good morning. Great questions.

Thilo Wrede: Good morning, Matt. A good question. You know, we've laid out the puts and takes for the year. You know, I think we talked about it at the beginning of the year. We had a lot more puts and takes in the first half of the year than the second half. Really, for the second half, the biggest piece to keep in mind is the 53rd week that we had last year. Other than that, you know, we mentioned our TDP gains and the pre-character mark. Um, I think you can. We talked about the items, you know, the number of SKUs on the shelf in the prepared remarks.

Thilo Wrede: So, it's not so much about there being this day X when shelf resets happen, and all of a sudden, our TDPs jump up; it's an ongoing, continuous process, right? I think we've had TDP gains in X pretty much every month of the year. If you look at overall scanner data for us, it might look a bit different because we have year-over-year distribution losses in butter that we're hoping to capture back in the second half of the year, but it's really an ongoing process that will build on itself month after month rather than a particular date when everything will change.

Thilo Wrede: So the growth over the second half of the year, don't expect that there's going to be some major inflection point there. It's really an ongoing process, and the 53rd week is that one big milestone, eventDote there, laughing, that one that will reduce fourth quarter growth relative to second to that.

Matt Smith: Thank you for that. And, just as a follow-up. You talked about reinvesting some of the first half upside to sustain and feed the virtuous cycle through increasing marketing even above where you expected it to increase for the year. Are you also leaning more heavily into promotions behind the egg business to drive additional. Consumer Trial and Consumer Household Penetration, or is that upside being? focused on marketing investments and less on the promotion side? And I'll leave it be.

Thilo Wrede: So the first one related to are we just, I think, I think the question was, are we just doing a better job of selling all of our eggs at maybe the branded shelf price as opposed to selling them into a wholesale channel? As you know, there is a small, call it low single digit percent of the eggs that we bring off our farms that do not meet our high quality standards. And those get sold to a wholesale channel to be broken, pasteurized, and used as an ingredient in somebody else's product. The benefit of higher commodity egg prices shows up there because that higher commodity egg price flows through to the price the breaker plant is willing to pay for that small amount of our eggs.

Speaker Change: Thanks Adam. Good morning. Great, great questions. So the first one related to are we just, I think, I think the question was are we just doing a better job of selling all of our eggs at maybe the the branded shelf price as opposed to selling them into a wholesale channel?

Thilo Wrede: Yeah, so the reinvestment is really into marketing, spending, and capabilities. We did increase promotions in the first half of the year relative to last year, simply because last year we didn't. We really couldn't spend because of the dislocations on shelves because of avian influenza, right? There was no point in us subsidizing existing sales, and so we pulled back on trade promotions. We put that back on.

Thilo Wrede: First half of this year, second half of the year, trade promotions are at the previously planned levels, I would say. So the investment goes to marketing, and it goes to capability building. One of your peers had asked a question about investments in headcount, for example.

Thilo Wrede: We have the ability to maybe accelerate some headcount growth in order to get capabilities in-house that we have planned for to get them in-house next year. So we're bringing them in now because we can, because we are able to afford it, and it actually allows us to get ahead of our planned growth curve already. This is not about promotion spending, right? Our promotion spend is to drive trial in order to then convert trial into repeat spend or repeat purchases and drive also penetration that way.

Thilo Wrede: That's a plan that we built well in advance, and that's not something that we change on the dime. We don't have to. So it's really about capability building. And one thing I'd add to Thilo's excellent remarks on that topic is that we just

Russell Diez Canseco: And one thing I'd add to Thilo's excellent remarks on that topic is that we, just in case it wasn't obvious, we don't use promotions to rent market share. And I'm stealing that quote from our sales leader, Pete Pappas. That's not how we grow this.

Speaker Change: As you know, there is a small, to call it low, single-digit percent of the eggs that we bring off our farms that do not meet our high-quality standards.

Speaker Change: And those get sold to a wholesale channel to be broken, pasteurized, and used as an ingredient in somebody else's product.

Speaker Change: The benefit of higher commodity egg prices

Speaker Change: This shows up there because that higher commodity egg price flows through to the price the breaker plant is willing to pay for that small amount of our eggs. It's not a profit driver. We're not actively selling into the wholesale channel. It's just the place where the eggs we don't want to use go.

Thilo Wrede: It's not a profit driver. We're not actively selling into the wholesale channel. It's just the place where the eggs we don't want to use go. But we have not, for many years now, sent eggs that could go on the shelf that met our high quality standards. We haven't sent measurable quantities of them to the breaker plant occasionally if the mix of different sizes is not perfectly in line with the order pattern. For example, in the summer, birds produce more medium eggs. And so we don't necessarily, we aren't necessarily able to sell all of them in line with that change in production in retail.

Ben Klieve: Yeah, thanks Russell, that was that was really helpful. Yeah, and until any any input on the level of investment beyond the $3 million would be great. Yeah, as I said before, in the queue, I think we mentioned that for the next 12 months, we plan to spend $20 to $30 million on this. The $3 million so far was full of land purchase. Now we need to actually construct the barns and put the equipment into the barns and so on.

Speaker Change: But we have not, for many years now, spent

Speaker Change: Eggs that could go on the shelf.

Speaker Change: That met our high quality standards. We haven't sent

Speaker Change: You know measurable quantities of them to the breaker point.

Speaker Change: Occasionally, if the mix of different egg sizes is not perfectly in line with the order pattern, for example, in the summer, birds produce more medium eggs, and so we don't necessarily, we aren't necessarily able to sell all of them in line with that change in production in retail. We may have some small transitory amounts of eggs that we sell to the wholesale channel.

Ben Klieve: I will assume that we will continue to invest in this approach for the next 12 months. And so there will be continued cab expense here. But as Russell said, it's another way for us to ensure that we have the X supply. We did mention in the prepared remarks that we are now working with 350 family farms. So since the beginning of the year, we have grown this by about 50 farms. We continue to have a very good pipeline of farmers, but we are also expanding into a new part of the country, right?

Thilo Wrede: We may have some small transitory amounts of eggs that we sell to the wholesale channel. But no, it actually, you know, the economics of what we're doing in our gross margin got a little bit of tailwind again from that elevated commodity egg cost. It did not impact our price mix. That's our own strategy that's completely separate from what's going on in the broader market. And we're not seeing, and historically we have not seen big changes in the trajectory of our growth or our gross margins relative to what's going on in the broader commodity category. We don't respond to commodity price changes in the moment.

Speaker Change: But no, it actually, you know, the economics of...

Speaker Change: what we're doing in our gross margin got a little bit of tailwind again from that elevated commodity egg cost.

Speaker Change: It did not impact our price mix. That's our own strategy that's completely separate from what's going on in the broader market.

Ben Klieve: You don't have any farms in Indiana right now and this will allow us to basically prime the pump in Indiana for farms that we want to construct there. And so from our viewpoint, it's a great way to ensure that the supply for seen more once we need it will actually be in place already. Got it. Very good. All right. Well, I appreciate you both elaborating on that. Congratulations again on the great quarter, and I'll get back in queue. Thanks, Beth.

Speaker Change: And we're not seeing, and historically we have not seen big changes in the trajectory of our growth or our gross margins.

Speaker Change: Relative to what's going on in the broader commodity category. We don't respond to, you know, commodity price changes in the moment. We took price historically to protect margin, nothing more, nothing less, and we believe that continues to be true this year.

Thilo Wrede: We took price historically to protect margin, nothing more, nothing less. And we believe that continues to be true. Thank you. Okay, that's a helpful color.

Operator: Okay, your next question comes from the line of Adam Samuelson of Goldman Sachs. Please go ahead.

Unknown Speaker: Okay, that's helpful, Collar. If I could just ask a follow-up on some of the farms you're building in Indiana, I think it costs new family farms a lot more to get their barns set up and get their farms in place to support your production regularly. The costs seem a lot higher for what you're building in Indiana versus what I thought your family farmers were actually outlaying themselves to join your network.

Adam Samuelson: Yes, thank you. Good morning, everyone.

Adam Samuelson: If I could follow up on some of the farms you're building in Indiana, I think, talked with 20 to 30 million dollars of cat-backs, and I guess I'm trying to square that, appreciating you to buy land, but square that with kind of what I perceive to be the cost for new family farms to get their barns set up and get their, get their farms in place to support your own, your production regularly, just the cost seems a lot higher for what you're building in Indiana versus what I thought your family farmers were actually outlining themselves to, to join your network.

Rob Moskow: Very next question comes from the line of Rob Moscow from Edie Collins. Please go ahead. Now I thanks.

Collar: Okay, that's helpful, Collar. If I could just ask a follow-up on some of the farms you're building in Indiana, I think,

Adam Samuelson: So I guess my first question is maybe to come back to the gross margins in the second quarter and really the first half and want to maybe take it from the lens of kind of the supply planning point that you made earlier, Russell. You have to make your own internal supply decisions for how many eggs you will have from your farms a year plus in advance. Your volumes in the first half of the year have been very, very good and above the level at which you'd kind of, I think, assume long-term revenue growth.

Adam Samuelson: So the question is, is there a benefit in the first half gross margins from just utilizing more of that kind of surge, kind of internal egg production that's ending up in a pasture-raised branded form versus having to get sold into other channels, and that's helped your overall gross margins? Also, there's some upside to fixed-cost absorption in egg central stations, and as well, relatedly, how much the kind of increases in elevated commodity egg prices and egg product prices, especially in the second quarter versus last year. How much, if at all, did that help the results?

Russell Diez Canseco: Thanks, Adam. Good morning.

Russell Diez: Congratulations again. Russell and Tilo, I wanted to ask a little bit more for some color on how you're expanding the talent pool of the organization to handle all this growth. What kind of headcount increases are you putting in for things like sales, supply chain, logistics, marketing, you know, like running a billion dollar business is a lot different than running a four hundred million dollar business. So I wanted to hear about how you're prepping for that.

Speaker Change: Talked with 20 to 30 million dollars of CapEx, and I guess I'm trying to square that appreciating you to buy land, but

Speaker Change: square that with kind of what I perceive to be the

Speaker Change: Costs for new family farms to get their barn set up and get their farms in place to support your production.

Speaker Change: Regularly, just the cost seemed a lot higher for what you're building in Indiana versus what I thought your family farmers were actually outlaying themselves to join your network.

Russell Diez Canseco: Yeah, it's a fair question, and I think historically we've seen numbers for a small family farmer in the range of 1.2 to 1.5 million dollars. Thilo may have a more recent number, but that's my understanding.

Russell Diez Canseco: Great, great questions. So the first one related to, are we just, I think, the question was, are we just doing a better job of selling all of our eggs at maybe the branded shelf price as opposed to selling them into a wholesale channel? As you know, there is a small, call it low, single-digit percent of the eggs that we bring off our farms that do not meet our high quality standards.

Russell Diez: Yeah, it's a fair question, and I think historically we've seen numbers for a small family farmer in the range of 1.2 to 1.5 million dollars. Thilo may have a more recent number, but that's my understanding. And if you did the math that you did on the number of farms we expect to build versus the dollars, we're planning on spending more, and that doesn't mean we will. But, as I mentioned in the opening comments, and in my response to one of your appeals questions, we're really excited to try some new things on these farms. And those new things may involve some capex beyond what our network of small family farms normally does as part of their contract with us.

Russell Diez Canseco: And those get sold to a wholesale channel to be broken, pasteurized, and used as an ingredient in somebody else's product. The benefit of higher commodity egg prices shows up there because that higher commodity egg price flows through to the price the breaker plant is willing to pay for that small amount of our eggs. It's not a profit driver. We're not actively selling into the wholesale channel. It's just the place where the eggs we don't want to use go.

Russell Diez Canseco: But we haven't, for many years now, had eggs that could go on the shelf that meet our high quality standards. We haven't sent, you know, measurable quantities of them to the breaker plant. Occasionally, if the mix of different egg sizes is not perfectly in line with the order pattern, for example, in the summer, birds produce more medium eggs, and so we don't necessarily, we aren't necessarily able to sell all of them in line with that change in production at retail. We may have some small transitory amounts of eggs that we sell to the whole.

Russell Diez Canseco: But no, actually, you know, the economics of what we're doing in our gross margin got a little bit of a tailwind again from that elevated commodity egg cost, but it did not impact our price mix. That's our own strategy that's completely separate from what's going on in the broader market. And we're not seeing, and historically we have not seen big changes in the trajectory of our growth or our gross margins relative to what's going on in the broader commodity category. We don't respond to, you know, commodity price changes at the moment. We took price historically to protect margin, nothing more, nothing less. And we believe that continues to be true this year.

Adam Samuelson: Okay, that's helpful, Collar. If I could just ask a follow-up on some of the farms you're building in Indiana, I think... talk to 20 to $30 million in CapEx. And I guess I'm trying to square that, appreciating you for buying land, but I'm going to score that with kind of what I perceive to be the cost for new family farms to get their barns set up and get their farms in place to support your production regularly. The costs seem a lot higher for what you're building in Indiana versus what I thought your family farmers were actually outlaying themselves to join your network.

Speaker Change: Yeah it's a fair question and I think historically we've seen numbers for a small family farmer in the range of 1.2 to 1.5 million dollars. Tila may have a more recent number but that's my understanding.

Russell Diez: And then secondly, for the new facility and see more. Is it pretty much like like cut and paste like is the facility in Missouri? Like what you've learned from that one? Is it pretty, is it going to be like very easy to set up a similar process in Indiana? Like because I've seen in startup companies that sometimes, you know, opening up a new production line can be kind of tricky based on all kinds of things that you didn't anticipate. Thanks Rob.

Speaker Change: And if you did the math as you did on...

Tila: The number of farms we expect to build versus the dollars, we're planning on spending more.

Tila: And that doesn't mean we will.

Speaker Change: But as I mentioned in the opening comments and in my response to one of your peers' questions, we're really excited to try some new things on these farms, and those new things may involve some capex beyond what our network of small family farms normally does as part of their contract with us.

Russell Diez: Good morning. Great questions because I think it is so common for companies at our stage of growth still in hyper growth mode and looking ahead to a billion dollars and beyond. It's so common for their top line to get ahead of their ability to service that that top line. And you've known us for years now and hopefully you've gotten used to my refrain about planning for our capacity and capability expansion well in advance of the need so that we don't run into those somewhat predictable roadblocks that I believe predictable is preventable.

Russell Diez: There is lots of innovation. I won't bore you with all the details on this call, but some of those things are capital expenditures, and we wanted to make sure, very conservatively, that we carved out and previewed for you. I would describe it as the maximum spent. One example, and I know there are a lot of ways to finance them, but one example that we're excited to try is putting solar panels in the field in the pasture, because the birds want some shade, and they want a windbreak, and solar panels do that, and they also generate electricity.

Speaker Change: There is lots of innovation. I won't bore you with all the details on this call. But some of those things are capital expenditures, and we wanted to make sure, very conservatively,

Collar: that we carved out and previewed for you, you know, I would describe it as the maximum

Speaker Change: are stamped.

Speaker Change: You know, one example, and I know there are a lot of ways to finance them, but one example that we're excited to try is putting solar panels in the field, in the pasture, because the birds want some shade and they want a windbreak, and solar panels do that, and they also generate electricity.

Anthony Bucalo: Well, we're not sure how the financing will all work out. So in our brand of conservatism, we just assume that will be our capex, and hopefully we don't spend quite as much as we guided. All right, now that's a very helpful color. I'll pass it on. Thank you. Thanks. That concludes our Q&A session.

Speaker Change: Well, we're not sure how the financing will all work out, so in our brand of conservatism, we just assume that will be our capex. And hopefully we don't spend quite as much as we guided.

Russell Diez: So for example, we've talked about the digital transformation effort that is currently underway to make sure that we have the right systems in place to scale from our current revenue level to a billion and beyond. When it comes to adding talent, one of the really cool things about vital farms is we really do have, and a lot of people say it, we really do have a pretty darn distinct culture and we attract really outstanding crew members in every function.

Speaker Change: All right, now that's very helpful, Culler. I'll pass it on. Thank you. Thanks.

Anthony Bucalo: I will now turn the conference back over to Anthony Bukalo for closing remarks. Thank you again, everyone, for your supportive Vital Farms. Have a good day. This concludes today's call.

Collar: That concludes our Q&A session. I will now turn the conference back over to Anthony Bucalo for closing remarks.

Russell Diez: And in my experience, other great people like to work with teams of great people. And so we don't struggle to hire and we're very thoughtful in the short and long run about making sure we have a talent roadmap in order to make sure that we're well ahead of the of the demands of the business as for the actual numbers that we're planning. You know, I don't think we've sort of guided to that.

Anthony Bucalo: Thank you again everyone for your support of Vital Farms. Have a good day.

Operator: You may now disconnect.

Speaker Change: This concludes today's call. You may now disconnect.

Russell Diez: Maybe Tilo has some some insights that he wants to share, but my commitment to you is that frankly, a big part of my job is simply after setting the strategy is ensuring that we have all the resources we need to execute really well. Okay. Thanks. And just in terms of like the facility itself that you're building, like is every is every egg washing facility the same or are there differences? Oh, no, put this one in place.

Russell Diez: If you've seen our facility, you'll know not every egg washing facility is the same. But what's cool about theme or is it is advantage because it benefits from the learnings of working for seven years in Springfield. And so, yeah, the basic operation, the washing inspecting and packing of eggs is the same. The machine will be from the same manufacturer. We're well familiar with it. We've got the advantage of the ability to train up the entire new crew in our currently operating facility over time.

Russell Diez: And our vice president of operations, who's deeply embedded in Springfield today is also the person overseeing the construction and standing up of the new facility. So we feel great about continuity. We feel great about our understanding how to run one of these places really well. And of course, the startup never goes perfectly as planned, but this is about as close to what we're already doing is I can imagine.

Unknown Executive: Okay, great.

Unknown Executive: Thank you.

John Andersen: Your next question comes from the line up, John Andersen, of William Blair. Please go ahead. Hey, morning everybody. Congratulations. Thank you. My question, just one, but I guess a two-parter. One of the questions I get asked most frequently is kind of sustainable competitive advantage. I think investors have a hard time getting their arms around that. And what I'd love to hear your kind of refresh us on is is thinking around both your brand and supply chain because it seems to me that, you know, the brand and your relationship with retailers and perhaps ability to have a greater influence and inform kind of the world.

John Andersen: The shelf in this category is part of the barrier or the mode. And then the supply chain. And in terms of your relationships with farmers, the farmer economics. But he can tell a little bit from your perspective at what constitutes the most that would be very helpful. Thanks, John. Very fair question and one that, you know, we're not unfamiliar with.

Russell Diez: If you'd asked me that question three years ago, I would have somewhat flippantly said there is no moat and arguably there isn't one around the production of eggs. But what there is a mode around is what we think we're really differentiating and that is selling food with with a level of transparency and with a level of trust in the way we do that. That's hard to come by in this country. And so, and the way I would maybe prove that assertion or at least some evidence that I think indicates it is in our top 10 customers.

Russell Diez: We're not the only brand of pasteurized eggs on the shelf. And if you believe that's a commodity in need of a moat, interestingly, we have the highest price version of that kind of egg. And yet we're growing the fastest and have the highest market share year after year after year. And so you have to begin to wonder, are we selling a commodity egg inefficiently or are we perhaps doing something more than and you mentioned brand.

Russell Diez: It is absolutely my assertion that we have a brand that actually creates value for consumers. It's not just a pile of advertising on a commodity. We bring consumers and retailers into what we're doing and how we're doing it in a way that's fun and educational in a confusing segment of the grocery store, but also in a way that helps them understand how thoughtful and careful we are with all the details. So that would be my first spot that the moat is a way of operating and the way that you can maybe quantify that is around the brand and the value of the brand.

Russell Diez: You can see it in gross margins and you can see it in revenue growth. You also mentioned our network of farms and we have invested very thoughtfully and perhaps in an outsized way over a lot of years to develop. What I believe is the network of the best farmers in this country. I think we've got really great farmers and they stay with us and we spend a lot of time and energy with them helping them be successful and helping bring them the kind of education and resources that they ask us for because that's something that scales really well.

Russell Diez: You can hire one expert veterinarian to speak to a whole group of farmers rather than leaving that to them, for example. So that's a very hard thing to replicate. And I would have said two years ago, well, gosh, anybody could go, you know, could go partner with some small family farmers if they wanted to introduce a product line called pasteurized eggs. But increasingly what we're finding is that part of our accelerating and superior growth versus other branded and non branded versions of the commodity we produce is that we're just a little bit better, I think, at growing our supply in line with our business plans and attracting and retaining great farmers.

Russell Diez: And it turns out that, you know, farmers have a long memory. And they know how you treated them last year. And they know what you did when times were tough. And they know what you did when you didn't have to do it. And that's a very rare thing in agriculture in this country to actually treat farmers the way they deserve to be treated. But we do that. And that means we have the right to grow our network in a way that maybe some others don't.

Russell Diez: Great. Thank you. Thanks so.

Unknown Executive: Your next question comes from the line of Matt Smith from Stiefel. Please go ahead. Hi, good morning. Thilo, I wanted to come back to the second half expectations. Top line looks like it's expected to grow about 20% including the headwind from lapping the extra week. Is there anything you'd call out in terms of the timing of your expectations for distribution gain, shelf reset, promotional events, or any unique comparisons to the prior year we should keep in mind as we phase the growth across the third and fourth quarter.

Unknown Executive: Good morning, Matt. Good question. You know, we've laid out the puts and takes for the year. I think we talked about it at the beginning of the year. We had a lot more puts and takes first half of the year than second half. Really for the second half the biggest piece of human mind is the 53rd week that we had last year. Other than that, you know, we mentioned our TDP gains and the prepared remarks.

Unknown Executive: I think you can, we've talked about the items, you know, a number of skews on shelf in the prepared remarks. So it's not so much about there's going to be X when shelf reset's happening all of a sudden our TDP's jump up. It's an ongoing continuous process. I think we've had TDP gains in X pretty much every month or year. If you look at overall scan data for us, it might look a bit different because we have over year distributional system butter that we're hoping to capture back in the second half of the year.

Unknown Executive: But it's really an ongoing process that we'll build on itself month after month rather than particular date when everything will change. So the growth over the second half of the year don't expect that there's going to be some major inflection point there. It's really an ongoing process and the 53rd week is that one big, big, yeah, and even out there, laughing that one, that will reduce fourth quarter growth relative to third quarter growth probably.

Unknown Executive: Thank you for that and just as a follow up. You talked about reinvesting some of the first half upside to sustain and feed the virtuous cycle through increasing marketing even above where you expected it to increase for the year. Are you also leaning being more heavily into promotions behind the egg business to drive additional consumer trial and consumer household penetration or is that upside being focused into marketing investments and less so on the promotion side and always there.

Unknown Executive: Thank you. Yeah, so the reinvestment is really into marketing, spending and capabilities. We did increase promotions and for some of the year relative to last year, simply because last year we didn't, we really couldn't spend because of the dislocations on shelves because of avian influenza, right? There was no point in us subsidizing existing sales and so we pulled back on trade promotions. We put that back on. So this year, second half of the year trade promotions are at the previously planned levels, I would say.

Unknown Executive: So the investment goes to marketing and it goes to capability building. One of the appears to ask the question about investments in headcount for example, we have the ability to maybe accelerate some headcount growth. In order to get capabilities in house that we are planning for to get them in house next year. So we're bringing them in now because we can, because we can, we are able to afford it and it actually allows us to get ahead of our of our plan growth curve, curve already.

Unknown Executive: This is not about promotion spending, right? Our promotion spend is to drive to drive trial in order to then convert trial into repeat spend or repeat purchases and drive also penetration that way. That's a plan that we build well in advance and that's not something that we, we change on the dime if we don't have to. So it's really about capability building that. And one thing I'd add to Tilo's excellent remarks on that topic is that we just in case it wasn't obvious, we don't use promotions to rent market share and I'm stealing that quote from our sales leader Pete Pappas. That's not how we grow this business.

Adam Samuelson: Okay, your next question comes from the light of Adam Sandelson of Goldman Sachs.

Adam Samuelson: Please go ahead. Yes, thank you.

Thilo Wrede: Good morning, everyone. So I guess my first question is maybe coming back to the gross margins in the first in the second quarter and really the first half and want to maybe take it from the lens of kind of the supply planning point that you made earlier Russell. You have to make your own internal supply decisions or how many eggs you have from your farms year plus in advance. Your volumes in the first half of the year have been, have been very, very good.

Thilo Wrede: And above the level at which you kind of, I think, assume long-term revenue growth. So the question is how much, you know, is there a benefit in the first half gross margins from just, you utilizing more of that kind of surge kind of internal egg production that's ending up in a pasteurized branded form versus having to get sold into other channels. And that's helped your overall gross margins. So there's some upside to fix cost absorption and in egg central station.

Thilo Wrede: And as well, relatedly, how much has kind of increases in elevated commodity egg prices and egg product prices, especially in the second quarter versus last year. How much if it all that help the results. Thanks, Adam. Good morning. Great questions. So the first one related to, are we just, I think, I think the question was, are we just doing a better job of selling all of our eggs at maybe the branded shelf price as opposed to selling them into a wholesale channel.

Thilo Wrede: As you know, there is a small, call it low single digit percent of the eggs that we bring off our farms that do not need our high quality standards. And those get sold to a wholesale channel to be broken, pasteurized and used as an ingredient in somebody else's product. The benefit of higher commodity egg prices shows up there because that higher commodity egg price flows through to the price, the breaker plant is willing to pay for that small amount of our eggs.

Thilo Wrede: It's not a profit driver. We're not actively selling into the wholesale channel. It's just the place where the eggs we don't want to use go. But we have not for many years now sent eggs that could go on the shelf that met our high quality standards. We haven't sent, you know, measurable quantities of them to the breaker plant occasionally. If the mix of different egg sizes is not perfectly in line with the order pattern, for example, in the summer, birds produce more medium eggs.

Thilo Wrede: And so we don't necessarily, we aren't necessarily able to sell all of them in line with that change in production in retail. We may have some small transitory amounts of eggs that we sell to the wholesale channel. But no, it actually, you know, the economics of what we're doing in our gross margin got a little bit of tailwind again from that elevated commodity egg cost. It did not impact our price mix.

Thilo Wrede: That's our own strategy that's completely separate from what's going on in the broader market. And we're not seeing and historically we have not seen big changes in the trajectory of our growth or our gross margins relative to what's going on in the broader commodity category. We don't respond to commodity price changes in the moment. We took price historically to protect margin, nothing more, nothing less. And we believe that continues to be true. Thank you. Okay, that's a helpful color.

Russell Diez: If I could follow up on some of the farms you're building in Indiana, I think, talked with 20 to 30 million dollars of cat-backs, and I guess I'm trying to square that, appreciating you to buy land, but square that with kind of what I perceive to be the cost for new family farms to get their barns set up and get there, get there, their farms in place to support your production regularly, just the cost seems a lot higher for what you're building in Indiana versus what I thought your family farmers were actually outlining themselves to join your network. Yeah, it's a fair question, and I think historically we've seen numbers for a small family farmer in the range of $1.2 to $1.5 million.

Russell Diez: Tina may have a more recent number, but that's my understanding. And if you did the math as you did on the number of farms we expect to build versus the dollars, we're planning on spending more, and that doesn't mean we will. But as I mentioned in the opening comments, and in my response to one of your appears questions, we're really excited to try some new things on these farms, and those new things may involve some cat-backs beyond what our network of small family farms normally does as part of their contract with us.

Russell Diez: There is lots of innovation. I won't bore you with all the details on this call, but some of those things are capital expenditures, and we wanted to make sure very conservatively that we carved out and previewed for you. I would describe it as the maximum spent. One example, and I know there are a lot of ways to finance them, but one example that we're excited to try is putting solar panels in the field, in the pasture, because the birds want some shade, and they want a windbreak, and solar panels do that, and they also generate electricity.

Russell Diez: Well, we're not sure how the financing will all work out, so in our brand of conservatism, we just assume that will be our cat-backs, and hopefully we don't spend quite as much as we guided. All right, now that's a very helpful color. I'll pass it on. Thank you. Thanks.

Unknown Executive: That concludes our Q&A session.

Anthony Bucalo: I will now turn the conference back over to Anthony Bukalo for closing remarks. Thank you again, everyone, for your supportive vital farms. Have a good day.

Operator: This concludes today's call. You may now disconnect.